Transactions in 2011 Acquisitions On October 5, 2011, the Group completed the acquisition of a 51.0 percent participation in a holding company, which owns the life insurance, pension and general insurance operations of Banco Santander S.A. (Santander) in Brazil and Argentina. Between November 2, 2011 and November 4, 2011, the holding company completed the acquisition of a 100 percent participation in the life insurance, pension and general insurance operations of Santander in Chile, Mexico and Uruguay with the resulting 51.0 percent ultimate ownership for the Group. The Group obtained control over the acquired entities through its majority voting right in the holding company’s board of directors and as shareholder, which together allow the Group to direct the relevant activities of the insurance operations (Zurich Santander). As part of the transaction, the Group entered into long-term strategic distribution arrangements with Santander in Latin America. This transaction is in line with the Group’s emerging market strategy in both Global Life and General Insurance, and significantly expands the Group’s presence in Latin America.
The initial consideration paid by the Group amounted to approximately USD 1.2 billion, subject to an estimated purchase price adjustment of USD 23 million for the purchase accounting as reflected in the Consolidated financial statements as of acquisition dates. Subsequently such estimated purchase price adjustment has decreased immaterially. The Group is still in the process of finalizing the purchase price adjustment. The Group and Santander have also entered into long term loan agreements with one of the acquired companies, whereby total funds of USD 511 million were provided in line with the shareholdings of the Group and Santander. In addition to the initial consideration, both an earn-out component based on the future profitability under the distribution agreements and a protection mechanism for the Group’s initial consideration, which is based on a similar future profitability criterion, were agreed. Under the earn-out arrangement, payments are scheduled to be made after every five year period starting January 1, 2011 until December 31, 2035 by the Group, subject to the achievement of the profitability criterion. The earn-out payments which are denominated in local currency, are scheduled to increase over the 25 year period up to a cumulative maximum total amount of USD 1.6 billion, based on acquisition foreign exchange rates. On a present value basis the cumulative maximum earn-out payments amount to USD 334 million. The fair value of the earn-out liability as of acquisition date was estimated to amount to USD 99 million and was derived by a probability weighting of different profitability scenarios and by applying a local currency based discount rate.
Since acquisition the Group had in particular reassessed the value of technical reserves in Brazil, Chile and Mexico, deferred acquisition costs in Mexico and Chile and present value of future profits in Brazil, Mexico and Chile based on better available data as of the acquisition date. Total assets, including identifiable intangible assets for Global Life and General Insurance as of the acquisition dates, have been revised to USD 16.8 billion and total liabilities have been revised to USD 13.9 billion. These amounts have been allocated to individual balance sheet line items and exclude amounts reported in Other Operating Businesses. The initially recorded assets and liabilities in the Group’s Consolidated financial statements 2011 have been restated as set out in note 1. The identifiable intangible assets, gross of deferred tax, comprise the value of the distribution agreements in Brazil, Argentina, Mexico and Chile amounting to USD 2.0 billion and the present value of future profits (PVFP) of acquired insurance contracts for the life insurance businesses in Brazil, Mexico and Chile of USD 309 million. Based on these numbers, the residual goodwill amounts to nil. The value of the distribution agreements and PVFP were determined on the basis of country specific in-force data, transaction projections and assumptions. The non-controlling interests are valued proportionately to the purchase price paid by the Group.
Acquisition related costs of USD 24 million were included in other administrative expenses for the year ended December 31, 2011, and were excluded from business operating profit.
The financial result for the period from the acquisition dates to December 31, 2012 is included in the Group’s consolidated income statement for the year ended December 31, 2012. The main income statement information for Zurich Santander is shown in table 5.2.
Information from acquisition to December 31, 2012 Life insurance deposits 2,461 – 2,461 – 2,461 Gross written premiums and policy fees 2,050 720 2,770 – 2,770
Business operating profit before non-controlling interests 246 120 367 (43) 323 Business operating profit after non-controlling interests 126 61 187 (22) 165 Net income after taxes before non-controlling interests 220 Net income after taxes after non-controlling interests 112
Pro forma 2011 information 1 Gross written premium for 12 months 2,326 677 3,003 n / a 3,003 Net income after taxes for 12 months 372 1 Based on local GAAP information, as full year IFRS information is not available. The information is deemed to be a reasonable approximation but excludes the amortization of identifiable intangible assets and PVFP.
On September 30, 2011, the Group completed the acquisition of 100 percent of Malaysian Assurance Alliance Berhad, now known as Zurich Insurance Malaysia Berhad (ZIMB), a composite insurer based in Malaysia, together with 100 percent of four related services companies. The acquisition of ZIMB is aligned with the Group’s emerging-market strategy of expanding the Group’s presence in the Asia-Pacific region. The total preliminary purchase price of USD 138 million (initially USD 135 million) included an initial consideration of USD 108 million and an anticipated purchase price adjustment amounting to USD 30 million (initially USD 27 million). As of December 31, 2012, out of the initial consideration of USD 108 million, USD 63 million (initially USD 56 million) had been paid in cash, USD 45 million (initially USD 30 million) was placed in escrow and initially an amount of USD 22 million had been retained by the Group. The Group is still in the process of finalizing the purchase price adjustment. The amount in escrow is to be held for a period of two years. Based on the final purchase accounting the fair value of net tangible assets acquired amounted to USD 102 million (initially USD 113 million) and identifiable intangible assets, net of deferred tax, amounted to USD 19 million which mainly consisted of the PVFP of the acquired insurance contracts. Residual goodwill amounted to USD 17 million (initially USD 3 million), partly reflecting the future growth opportunities. In addition, the Group has injected approximately USD 135 million of capital into ZIMB immediately following the completion of the acquisition to meet regulatory capital requirements.
On July 12, 2011, as part of its preparations for local regulatory changes, the Group completed the acquisition of 75.0 percent of 2Plan Group Limited, an independent financial advice firm based in the UK. The total purchase price for the acquisition amounted to zero. The remaining 25.0 percent shareholding continues to be held by members of the founder management team who have options to sell their shareholdings to the Group at a price contingent upon the achievement of future profit targets by 2Plan Group Limited. Based on the final purchase accounting the tangible net assets acquired amounted to negative USD 5 million and identifiable intangible assets, net of deferred tax, amounted to USD 2 million consisting of software and capitalized recruitment director fees. Goodwill amounted to USD 3 million (initially USD 4 million) and reflects the future value from the Group’s improved independent financial advisor proposition and technology offering in the UK.
On June 30, 2011, the Group sold all of its shares in Lonsec Limited, including three wholly owned subsidiaries, a research and broking company based in Australia, in an effort to focus on its core business lines, recording a pre-tax gain on disposal in aggregate of USD 10 million. On July 1, 2011, the Group entered into business outsourcing agreements for which a pre-tax gain of USD 9 million was realized. Total cash and net assets divested in 2011 were USD 8 million and USD 8 million, respectively. The total consideration received in 2011, net of immaterial transaction costs, amounted to USD 28 million.
Total investments includes Group investments and investments for unit-linked products. Group investments are those for which the Group bears part or all of the investment risk. They also include investments related to investment contracts with discretionary participation features. Investments for unit-linked products include such investments where the policyholder bears the investment risk, and are held for liabilities related to unit-linked investment contracts and reserves for unit-linked insurance contracts. They are managed in accordance with the investment objectives of each unit-linked fund.
1 Net capital losses on derivative financial instruments attributable to cash flow hedge ineffectiveness amounted to USD 7 million and USD 13 million for the years ended December 31, 2012 and 2011, respectively.
Investments in associates and joint ventures 18 12 1 (45) 18 (33)
Securities designated at fair value through profit or loss 232 20 334 537 567 557
Net capital gains/(losses) for unit-linked contracts 8,412 (5,505) 584 236 8,996 (5,269)
Realized capital gains on Group investments 552 705 2,120 1,278 2,672 1,983 Realized capital losses on Group investments (163) (156) (480) (841) (643) (997)
Total net capital gains/(losses) and impairments 8,961 (5,193) 2,552 1,158 11,512 (4,035)
Table 6.2 in USD millions, for the years ended December 31Net capital gains, losses and impairments on equity and debt securities for total investments
Cash and cash equivalents 10,359 3.1 10,162 3.3 Equity securities: Fair value through profit or loss 103,689 31.1 93,978 30.1 of which: Trading securities 410 0.1 438 0.1 Securities designated at fair value through profit or loss 103,279 30.9 93,540 30.0
Cash and cash equivalents 9,098 4.4 8,882 4.5 Equity securities: Fair value through profit or loss 3,545 1.7 4,443 2.2 of which: Trading securities 410 0.2 438 0.2 Securities designated at fair value through profit or loss 3,135 1.5 4,006 2.0
Cash and investments with a carrying value of USD 6,340 million and USD 6,227 million were deposited on behalf of regulatory authorities as of December 31, 2012 and 2011, respectively.
Securities under security lending and short-term sale and repurchase agreements As of December 31, 2012 and 2011, respectively, investments included USD 7,751 million and USD 6,298 million of loaned securities. These loaned securities were mainly debt securities. Liabilities for cash collateral received for securities lending comprised USD 330 million and USD 159 million as of December 31, 2012 and 2011, respectively. Non-cash collateral received for loaned securities comprised mainly equity and debt securities and amounted to USD 8,085 million and USD 6,474 million as of December 31, 2012 and 2011, respectively. The Group can sell or repledge the collateral only in the event of a default by a counterparty.
Accrued interest on unit-linked investments included in accrued investment income amounted to USD 210 million and USD 303 million as of December 31, 2012 and December 31, 2011, respectively.
Table 6.4 in USD millions, as of December 31Debt securities maturity schedule (total investments)
As of January 1 12,370 12,355 Additions and improvements 316 267 Acquisitions – 120
Market value revaluation (206) 40 Transfer from assets held for own use – 116 Transfer to assets held for sale (89) – Foreign currency translation effects 353 (133) As of December 31 12,041 12,370
Associates: Seven Investment Management Limited 21 19 1 2 49.00% 49.00%
1 The Group has several special purpose entities (SPEs) in the U.S. which are consolidated using the equity method as a reasonable approximation, as the equity interest is usually 99% and the investment balance approximates the value of the SPE’s assets. These entities were specifically designed to facilitate U.S. commercial property sale and leaseback transactions.
Table 6.9 in USD millions, as of December 31Investments in associates and joint ventures
The Group uses derivative financial instruments mainly for economic hedging purposes in order to mitigate risks. Such risks result from changes in interest rates, equity prices and exchange rates.
Interest rate contracts: OTC Swaps 267 1,416 3,610 5,292 349 (45) 4,274 307 (14)
Exchange traded Futures 8 – – 8 – – 997 – –
Credit contracts: OTC Credit default swaps – – – – – – 160 – (1) Total credit contracts – – – – – – 160 – (1) Other contracts: OTC Puts – – 93 93 – – 523 – (52)
The decrease in notional amounts of foreign exchange forwards between December 31, 2011 and December 31, 2012, was mostly volume driven.
Table 7.2 sets out details of fair value, cash flow and net investment hedges: Maturity by notional amount Notional principal amounts
Fair value hedges Designated fair value hedges consist of cross currency interest rate swaps used to protect the Group against changes in foreign currency exposure and interest rate exposure of euro and U.S. dollar – denominated debt issued by the Group.
A fair value hedge relationship on the EUR 500 million 4.5 percent subordinated note due June 2025 issued by Zurich Finance (USA), Inc. (see note 21), was entered into at the issuance of the debt instrument in 2005 and will end on June 15, 2015.
A fair value hedge relationship on the USD 750 million 3.25 percent senior note due for repayment in September 2013 issued by Zurich Finance (Luxembourg), S.A. (see note 21), was entered into on April 8, 2010 and will end on the maturity of the underlying debt instrument in 2013.
As of December 31, 2012 the following cash flow hedge relationships were in place (see note 21): • 80 percent of the EUR 1.0 billion 4.5 percent senior note due 2014 issued by Zurich Finance (USA), Inc. entered on January 1, 2007 ending September 17, 2014.
• 100 percent of EUR 600 million 6.5 percent senior note due October 2015 issued by Zurich Finance (USA), Inc. entered on April 14, 2009 ending October 15, 2015.
The portion recognized in income was a gain of USD 35 million and a loss of USD 53 million before tax for the years ended December 31, 2012 and 2011, respectively, as an offset to the foreign currency revaluation on the underlying hedged debt.
Net investment hedges In December 2012, the Group started to apply net investment hedge accounting in order to hedge against the effects of changes in exchange rates in its net investments in foreign operations. A net hedge relationship through a foreign exchange forward with a notional amount of GBP 168 million was in place for the year ended December 31, 2012.
Net losses deferred in shareholders’ equity on net investment hedges were USD 2 million before tax for the year ended December 31, 2012.
Table 7.3 in USD millions, as of December 31Gains/(losses) arising from fair value hedges
Policyholders’ contract deposits and other funds 20,024 18,356 (2,106) (2,181) 17,917 16,175 Reserves for unit-linked contracts 74,117 68,844 – – 74,117 68,844 Total reserves for insurance contracts 1 265,233 253,207 (19,880) (19,717) 245,353 233,490 1 The total reserves for insurance contracts ceded are gross of allowance for uncollected amounts of USD 127 million and USD 125 million as of December 31, 2012 and December 31, 2011, respectively.
Losses and loss adjustment expenses incurred: Current year 27,612 28,522 (3,273) (4,755) 24,340 23,767
Losses and loss adjustment expenses paid: Current year (10,548) (10,777) 694 959 (9,853) (9,817)
• In Global Corporate, favorable development of USD 199 million was driven by Europe essentially originating from Switzerland, the UK and Ireland. The development occurred mostly in the property and engineering lines of business; • In North America Commercial, favorable development of USD 203 million arose mostly from medical malpractice, general liability, errors and omissions and the Canadian operations; • The personal and commercial business in Europe reported favorable prior year development of USD 90 million. The favorable development was driven by USD 435 million in Switzerland, mostly in motor, and USD 96 million in the UK and Ireland, coming from many lines of business. Partially offsetting this, Germany reported an adverse development of USD 476 million arising mainly from the medical and professional liability lines of business.
The decrease of USD 839 million during the year ended December 31, 2011 in net reserves for losses and loss adjustment expenses included USD 1,302 million of favorable reserve development emerging from reserves established in prior years. Gross of reinsurance, the favorable development was USD 1,650 million. This favorable development was primarily attributable to the General Insurance business and mainly related to the following movements by market-facing business, country and line of business: • In Global Corporate, favorable development of USD 402 million was primarily driven by Europe and North America. In Europe, general liability and property contributed the most while in North America, the change in prior year estimates came from many lines of business with the exception of workers compensation; • In North America Commercial, favorable development of USD 458 million arose mostly from medical malpractice, general liability, directors and officers, errors and omissions, direct markets and surety business; • Favorable development in Europe of USD 186 million resulted primarily from favorable experience in Switzerland of USD 365 million, mostly in motor, while most other countries reported small favorable amounts. This was offset by Germany with USD 242 million of adverse development, driven by the medical and professional liability lines of business.
Initial net reserves for losses and loss adjustment expenses 37,013 43,486 46,194 50,814 54,712 52,986 55,944 56,180 55,341 57,385
Cumulative paid as of December 31: One year later (9,930) (9,464) (11,423) (11,237) (12,551) (13,047) (12,716) (13,092) (13,525) Two years later (15,550) (16,273) (18,044) (18,362) (19,660) (19,909) (19,821) (21,073) Three years later (20,407) (21,234) (23,077) (23,421) (24,428) (24,693) (25,623) Four years later (23,941) (24,945) (26,850) (26,839) (27,735) (28,808) Five years later (26,616) (27,798) (29,425) (29,224) (30,690) Six years later (28,668) (29,810) (31,189) (31,483) Seven years later (30,245) (31,148) (33,030) Eight years later (31,274) (32,655) Nine years later (32,423)
Cumulative incurred as of December 31: One year later 1,964 141 (218) (1,219) (1,271) (1,059) (1,378) (1,302) (571) Two years later 3,400 1,520 (367) (2,171) (2,152) (2,350) (2,565) (1,819) Three years later 4,991 1,839 (897) (2,686) (2,844) (3,048) (2,700) Four years later 5,241 1,808 (945) (3,003) (3,533) (3,176) Five years later 5,457 2,118 (1,044) (3,438) (3,580) Six years later 6,004 2,194 (1,184) (3,279) Seven years later 6,094 2,254 (841) Eight years later 6,223 2,686 Nine years later 6,662
Net reserves re-estimated as of December 31: One year later 38,977 43,627 45,976 49,594 53,441 51,927 54,565 54,878 54,770 Two years later 40,413 45,006 45,827 48,642 52,559 50,637 53,379 54,361 Three years later 42,004 45,325 45,297 48,127 51,868 49,939 53,243 Four years later 42,254 45,294 45,249 47,811 51,179 49,810 Five years later 42,470 45,604 45,150 47,376 51,131 Six years later 43,017 45,680 45,010 47,535 Seven years later 43,107 45,740 45,353 Eight years later 43,236 46,172 Nine years later 43,675
Gross reserves re-estimated as of December 31, 2012 60,188 61,592 60,182 60,669 63,258 60,993 64,138 65,876 67,086 Cumulative (deficiency)/ redundancy of gross reserves (9,120) (3,827) 243 3,866 4,633 4,225 3,988 2,398 676 Cumulative (deficiency)/ redundancy as a percentage of initial gross reserves (17.9%) (6.6%) 0.4% 6.0% 6.8% 6.5% 5.9% 3.5% 1.0%
Table 8.3 presents changes in the historical non-life reserves, net of reinsurance, that the Group established in 2003 and subsequent years. Reserves are presented by financial year, not by accident year. The reserves (and the development thereon) are for all accident years in that financial year. The top line of the table shows the estimated gross reserves for unpaid losses and loss adjustment expenses as of each balance sheet date, which represents the estimated amount of future payments for losses incurred in that year and in prior years. The cumulative paid portion of the table presents the cumulative amounts paid through each subsequent year in respect of the reserves established at each year end. Similarly, the cumulative incurred losses section details the sum of the cumulative paid amounts shown in the triangle above and the changes in loss reserves since the end of each financial year. The net reserves re-estimated portion of the table shows the re-estimation of the initially recorded reserve as of each succeeding year end. Reserve development is shown in each column. Changes to estimates are made as more information becomes known about the actual losses for which the initial reserves were established. The cumulative deficiency or redundancy is equal to the initial net reserves less the liability re-estimated as of December 31, 2012. It is the difference between the initial net reserve estimate and the last entry of the diagonal. Conditions and trends that have affected the development of reserves for losses and loss adjustment expenses in the past may or may not necessarily occur in the future, and accordingly, conclusions about future results cannot be derived from the information presented in table 8.3.
Losses and loss adjustment expenses incurred 51 37 42 80 Losses and loss adjustment expenses paid (134) (110) (159) (68) Acquisitions/(divestments) and transfers 1 – (127) – – Foreign currency translation effects 132 112 (8) (8)
1 The 2012 net movement relates to a reinsurance agreement which transfers the benefits and risks of some of the Group’s general insurance portfolio to RiverStone Insurance (UK) Limited, prior to a portfolio sale until regulatory clearance is obtained.
The Group has considered asbestos and environmental, including latent injury, claims and claims expenses in establishing the reserves for losses and loss adjustment expenses. The Group continues to be advised of claims asserting injuries from toxic waste, hazardous materials and other environmental pollutants, alleged damages to cover the clean-up costs of hazardous waste dump sites relating to policies written in prior years and indemnity claims asserting injuries from asbestos. Coverage and claim settlement issues, such as determination that coverage exists and the definition of an occurrence, together with increased medical diagnostic capabilities and awareness have often caused actual loss development to exhibit more variation than in other lines. Such claims require specialized reserving techniques and the uncertainty of the ultimate cost of these types of claims has tended to be greater than the uncertainty relating to standard lines of business.
For 2011, there was a decrease in gross and net reserves driven by the re-estimation of the ultimate liability for asbestos as well as the normal payout of claims. In addition, the decrease in gross reserves was partially offset by the increase in UK reserves, which contributed also to the overall increase in net reserves. This increase in UK gross and net reserves followed a court ruling in Scotland and Northern Ireland related to the impact of pleural plaques losses.
Fee income and other expenses (1,789) (2,072) 182 87 (1,608) (1,985) Interest and bonuses credited to policyholders 2,649 3,257 (75) (161) 2,575 3,096
(Decreases)/increases recorded in other comprehensive income 167 252 – – 167 252 1 The 2012 net movement includes USD 937 million transferred from reserves for unearned premiums, USD 66 million transferred from policyholders’ contract deposits and other funds, USD 33 million transferred from loss reserves (see note 1) and USD 15 million from the acquisition of ZIMB (see note 5). The 2011 net movement includes reserves acquired with Zurich Santander of USD 1,258 million, as well as USD 1,353 million acquired with ZIMB (see note 5). Additionally it includes reclassifications of USD 212 million transferred from other liabilities, partly offset by USD (27) million transferred to liabilities for investment contracts (see note 1 of the Consolidated financial statements 2011).
Universal life and other contracts 12,219 11,681 Policyholder dividends 7,804 5,355 1 Annuities were reclassified to reserves for losses and loss adjustment expenses and future life policyholders’ benefits (see note 1).
Table 8.8 in USD millionsDevelopment of policyholders’ contract deposits and other funds
Fee income and other expenses (1,586) (1,689) Interest and bonuses credited/(charged) to policyholders 6,270 (1,274)
Foreign currency translation effects 804 (571) As of December 31 74,117 68,844 1 The 2012 movement includes USD 151 million transferred from liabilities for investment contract liabilities (see note 1). The 2011 net movement includes USD 9,634 million from Zurich Santander and USD 221 million acquired with ZIMB (see note 5). Additionally it includes a reclassification of USD (140) million to liabilities for investment contracts (see note 1 of the Consolidated financial statements 2011).
Fee income and other expenses (609) (573) Interest and bonuses charged/(credited) to policyholders 4,983 (1,431)
Fin an cial info rm atio n 11. Gross and ceded insurance revenues and expenses
Change in reserves for unearned premiums 845 932 (103) (181) 741 751
Table 11.1 in USD millions, for the years ended December 31Insurance benefits and losses
Consolidated financial statements continued 12. Deferred policy acquisition costs and deferred origination costs
Amortization charged/ (credited) to other comprehensive income – – (314) (21) – – (314) (21)
1 Net of eliminations from inter-segment transactions. 2 The 2012 movement includes USD 5 million transferred to deferred origination costs in Global Life (see note 1) and USD 3 million in General Insurance mainly as a consequence of the loss of control over one of the Group’s subsidiaries (see note 5). The 2011 movement includes the acquisition of Zurich Santander (see note 5).
Impairments in 2012 include USD 39 million, following a reassessment of the deferred policy acquisition costs in the General Insurance business in Germany.
As of January 1 824 866 Origination costs deferred 79 101
Foreign currency translation effects 29 (9) As of December 31 770 824 1 The 2012 movement consists of USD 5 million transferred from deferred policy acquisition costs (see note 1).
Farmers Group, Inc. and its subsidiaries (FGI) through its attorney-in-fact (AIF) relationship with the Farmers Exchanges, which are managed but not owned by Farmers Group, Inc., a wholly owned subsidiary of the Group, is contractually permitted to receive a management fee of 20 percent (25 percent in the case of the Fire Insurance Exchange) of the gross premiums earned by the Farmers Exchanges.
Table 15 shows the maturity schedule of collateralized loans as of December 31, 2011.
Gross carrying value as of January 1, 2012 325 1,057 575 559 694 3,210
Gross carrying value as of December 31, 2012 320 1,060 506 520 645 3,050
Gross carrying value as of January 1, 2012 2,186 2,824 4,562 1,025 4,210 190 14,997
Amortization charged to other comprehensive income – (149) – – – – (149)
Gross carrying value as of December 31, 2012 2,239 2,890 4,435 1,025 4,418 219 15,226
Additions to goodwill of USD 14 million relates to the acquisition of ZIMB in 2011, resulting from an increase in the anticipated purchase price adjustment and finalization of the purchase accounting (see note 5) and an increase of USD 8 million relating to the increase of an earn out liability in Brazil.
Net carrying value as of January 1, 2011 2,104 906 2,281 1,025 1,623 119 8,059
A long term strategic arrangement over a 25 year period with Banco Santander S.A. in Latin America significantly expanded the Group’s presence in this emerging market and resulted in new distribution agreements totalling USD 2,007 million within both the Global Life and General Insurance operations in Mexico, Brazil, Chile and Argentina. This transaction also resulted in additions to PVFP amounting to USD 309 million in Mexico, Brazil and Chile. In addition, the acquisition of ZIMB resulted in an addition to PVFP amounting to USD 24 million (see note 5).
Fin an cial info rm atio n 18. Receivables and other assets
Other financial liabilities Derivative liabilities 542 700 Amounts due to policyholders 761 645 Amounts due to insurance companies, agents & intermediaries 1,360 1,388 Amounts due to reinsurers 1,398 1,117 Liabilities for cash collateral received for securities lending 330 159 Amounts due to investment brokers 1,334 1,406 Deposits from banking activities 672 815 Liabilities for defined benefit plans 3,417 2,905 Other liabilities for employee benefit plans 108 109 Other liabilities 5,214 6,543 Other non-financial liabilities Current tax payables 1,101 947 Restructuring provisions 297 254 Premium prepayments and other advances 916 891 Other liabilities 684 1,259 Total other liabilities 18,135 19,137
During the year ended December 31, 2012, restructuring programs primarily impacted several European countries within the General Insurance and Global Life operations with estimated costs of USD 174 million for restructuring programs announced in the current year and USD 43 million for increases of provisions for restructuring which had been initiated in prior years. In addition, software impairments amounting to USD 11 million were made as part of the restructuring decisions of Global Life operations.
Table 19.2 in USD millions, as of December 31Maturity schedule – other financial liabilities1
Zurich Insurance Group Annual Report 2012 229Consolidated financial statements 20. Income taxes
Total income tax expense/(benefit) attributable to policyholders 194 (242) Total income tax expense attributable to shareholders 1,301 1,204 Total income tax expense 1,496 963
Table 20.3 sets out the factors that cause the actual income tax expense to differ from the expected expense computed by applying the Swiss statutory tax rate of 22.0 percent, which is the rate applicable in the jurisdiction where the ultimate parent company is resident.
Table 20.2 in USD millions, for the years ended December 31Income tax expense – policyholder/ shareholder attribution
Current tax receivables 1,198 825 Current tax payables (1,101) (947) Net current tax receivables/(payables) 96 (122)
Deferred tax assets 1,854 2,076 Deferred tax liabilities (5,238) (4,569) Net deferred tax liabilities (3,384) (2,493)
As of December 31, 2012 and 2011, respectively, USD 6 million was debited and USD 404 million was credited as deferred tax to shareholders’ equity, net of foreign currency translation effects.
The net deferred tax liabilities related to non-controlling interests amounted to USD 577 million and USD 614 million as of December 31, 2012 and 2011, respectively.
Gross deferred tax Deferred acquisition and origination costs 35 (677) 24 (655) Depreciable and amortizable assets 45 (63) 30 (73) Life policyholders’ benefits and deposits 1 13 (15) 96 (49) Unrealized (gains)/losses on available-for-sale investments and cash flow hedges 251 (511) 410 (522) Accruals and deferred income 158 (1) 191 (2) Reserves for losses and loss adjustment expenses 434 (132) 457 (4) Reserves for unearned premiums 765 (59) 729 (61) Pensions and other employee benefits 544 – 541 –
The Group’s deferred tax assets and liabilities are recorded by its tax paying entities throughout the world, which may include several legal entities within each tax jurisdiction. Legal entities are grouped as a single taxpayer only when permitted by local legislation and when deemed appropriate. The first part of table 20.8 includes single taxpayers with a net deferred tax asset position and the second part includes single taxpayers with a net deferred tax liability position.
For which deferred tax assets have been recognized, expiring < 5 years 105 170 > 20 years or with no time limitation 1,002 1,010
Management assesses the recoverability of the deferred tax asset carrying values based on future years taxable income projections and believes that the carrying values of the deferred tax assets as of December 31, 2012, are recoverable.
Table 21.1 in USD millions, as of December 31Senior and subordinated debt
Senior and subordinated debt To facilitate the issuance of debt, the Group has in place a Euro Medium Term Note Programme (EMTN Programme) allowing for the issuance of senior and subordinated notes up to a maximum of USD 18 billion. All issuances under this programme are either issued or guaranteed by Zurich Insurance Company Ltd. The Group has also issued debt instruments outside this programme.
i) Senior debt Senior debt amounted to USD 6,660 million and USD 6,541 million as of December 31, 2012 and December 31, 2011, respectively.
The increase was primarily due to the issuance of two notes: in June 2012 under its EMTN Programme, Zurich Insurance Company Ltd issued a 1.5% CHF 400 million senior note and a 3.375% EUR 500 million senior note. This was partially offset by the redemption of a 4.875% EUR 800 million senior note issued in 2009 by Zurich Finance (USA) which matured in April 2012 and the translation effects of the U.S. dollar against the currencies in which the notes were issued.
Subordinated debt amounted to USD 5,861 million and USD 5,476 million as of December 31, 2012 and December 31, 2011, respectively.
2 Operational senior and subordinated debt include an adjustment of USD 100 million for non-recourse debt.
The net increase resulted from the issue of a number of debt instruments during 2012, which were used to re-finance matured debt and early and partial redemptions of debt, as well as for general corporate purposes, partially offset by the repayment of collateralized loans in operational debt. A further increase was due to the translation effects of the U.S. dollar against the currencies in which the notes were issued.
4.625% CHF 500 million, perpetual notes 4.625% payable annually up to May 16, 2018 and then reset to the prevailing 7 year CHF mid swap rate plus 2.691%.
Series II 6.45% USD 700 million Fixed / Adjustable Trust Preferred Securities (ECAPS), due December 2065 6.45% payable semi-annually until June 15, 2016 and then reset quarterly to the adjustable rate plus 2.00%. 2
In addition, the Group has access to four other revolving credit facilities totaling USD 441 million, of which USD 336 million are expiring in 2014 and USD 75 million in 2015. No borrowings were outstanding under any of these facilities as of December 31, 2012 or December 31, 2011.
Issued share capital As of December 31, 2010 14,658,690 146,586,896 0.10 New shares issued from contingent capital in 2011 79,893 798,926 0.10
New shares issued from contingent capital in 2012 91,430 914,301 0.10
The Board of Directors is authorized, when issuing bonds or similar debt instruments connected with conversion and/or option rights, to restrict or withdraw the right of shareholders for advance subscription in cases where such bonds are issued for the financing or re-financing of a takeover of an enterprise, of parts of an enterprise, or of participations. If the right for advance subscription is withdrawn by the Board of Directors, the convertible bond or warrant issues are to be offered at market conditions (including standard dilution protection provisions in accordance with market practice) and the new shares are issued at the then current convertible bond or warrant issue conditions.
Effect of potentially dilutive shares related to share-based compensation plans 739,870 (0.13) (0.13) Diluted earnings per share 3,878 147,381,143 26.31 24.66
Effect of potentially dilutive shares related to share-based compensation plans 1,103,836 (0.19) (0.17) Diluted earnings per share 3,746 146,893,848 25.50 22.52 1 Excludes the net income attributable to preferred shareholders of USD 4 million for the year ended December 31, 2011. 2 The translation from USD to CHF is shown for information purposes only and has been calculated at the Group’s average exchange rates for the years ended December 31, 2012 and 2011, respectively.
The Group had 52,722 and 52,648 employees (full-time equivalents) as of December 31, 2012 and 2011, respectively. Personnel and other related costs incurred for the year ended December 31, 2012 and 2011, were USD 6,109 million and USD 5,890 million, including wages and salaries of USD 4,861 million and USD 4,885 million, respectively.
a) Defined benefit plans Defined benefit pension plans Employees of the Group’s companies are covered by various pension plans, the largest of which are in the UK, U.S., Germany and Switzerland. Certain companies provide defined benefit plans, some of which provide benefits related to employees’ service periods and pensionable earnings. Others provide cash balance plans where the participants receive the benefit of the accumulated employer and employee contributions together with additional cash credits in line with the rules of the plan. Eligibility for participation in the various plans is either based on completion of a specified period of continuous service or from the date of commencement of employment.
Tables 23.1, 23.2 and 23.3 show the funded status of the Group’s plans, being the pension plans’ assets at fair value less the pension plans’ liabilities based on the present value of the obligations. Plans that are wholly unfunded are shown separately from plans that are wholly or partly funded.
Present value of funded obligations (19,043) (17,189) (14,978) (13,966) (12,680) (2) (1) – (70) (93) Fair value of plan assets 16,268 14,902 13,791 12,622 10,879 – – – – –
Mortgage loans 444 465 Cash and cash equivalents 182 193 Equity securities 3,696 3,233 Debt securities 11,002 10,151 Real estate 938 854 1 UK annuity policies.
Effect of curtailments or settlements 254 2 – 12 Foreign currency translation effects (566) 162 (9) (5) Benefit obligation as of December 31 (19,350) (17,478) (318) (302)
Table 23.4 in USD millions, as of December 31Expense recognized in income
The summary of the balance sheet changes in relation to defined benefit plans and other defined post-employment benefits is shown in table 23.8.
Contributions paid directly to meet benefits 30 – 21 – Change in liability due to asset ceiling 3 – – – Actuarial gain/(loss) included in other comprehensive income (473) (1,333) (3) (4) Foreign currency translation effects (82) 58 (9) (5)
Table 23.7 in USD millionsMovement in fair value of plan assets – funded plans
Table 23.8 in USD millionsMovement in liability for funded and unfunded plans
The movements in actuarial gains and losses due to differences between actual and expected experience on the Group’s plan assets and defined benefit obligations, together with the impact of changes in actuarial assumptions to reflect economic conditions at the year end are summarized in table 23.9.
Total actuarial gain/(loss) as of December 31 (4,781) (4,200) (2,914) (2,672) (2,907) Total actuarial gain/(loss) net of policyholder participation and taxes as of December 31 (3,308) (2,857) (1,924) (1,762) (1,934)
The actuarial assumptions for healthcare cost trend rates have an impact on the amounts recognized. A one percentage point change in the health care cost trend rates would have the effect on amounts recognized as set out in table 23.12.
b) Defined contribution pension plans Certain of the Group’s companies sponsor defined contribution pension plans. Eligibility for participation in such plans is either based on completion of a specified period of continuous service or the date of commencement of employment. The plans provide for voluntary contributions by employees and contributions by the employer which typically range from 2 percent to 10 percent of annual pensionable salary, depending on a number of factors. The Group’s contributions under these plans amounted to USD 132 million and USD 127 million in 2012 and 2011, respectively.
Table 23.12 in USD millions, as of December 31Effect of a change in health care cost trends on other defined post-employment benefits
Zurich Insurance Group Annual Report 2012 245Consolidated financial statements 24. Share-based compensation and cash incentive plans
b) Share-based compensation plans for employees and executives The Group encourages employees to own shares in Zurich Insurance Group Ltd and has set up a framework based on the implementation of either share options and/or performance share programs. Actual plans are tailored to meet local market requirements.
Employee share plans Share Incentive Plan for employees in the UK The Group established an Inland Revenue approved Share Incentive Plan and launched the partnership shares element of this plan in 2003, which enabled participating employees to make monthly purchases of Zurich Insurance Group Ltd shares at the prevailing market price out of their gross earnings. There were 181 and 252 participants in the plan as of December 31, 2012 and 2011, respectively. The Group also operates the 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 the business operating profit (BOP) after tax for the year, for 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 3,000. The total number of participating employees in the reward share element of the plans as of December 31, 2012 and 2011 was 5,289 and 4,463 respectively.
The Group Long-Term Incentive Plan Participants in this plan are granted a target number of performance shares in shares of Zurich Insurance Group Ltd in April each year, such that the economic value is a defined percentage of the annual salary of each participant in the year of grant. Performance shares vest on an annual basis over the subsequent three year period, with the actual level of vesting being between 0 percent and 175 percent of the original shares granted, with an additional discretion to increase vesting to a maximum of 200 percent, depending on the performance of the Group over the previous three calendar years. Performance metrics used to determine the level of vesting are the Group’s return on equity and the position of its total annual relative shareholder return measured against an international peer group of insurance companies. One half of the shares that actually vest are sales-restricted for a further three years. As of December 31, 2012 and 2011 there were 1,129 and 1,152 participants in the plan, respectively.
Prior to 2011, for selected senior executives, the target granted was allocated between performance shares and share options in shares of Zurich Insurance Group Ltd. Vesting of the share options is based on the same criteria as those for performance shares over the subsequent three year period, with the same potential multiple of the share options granted dependent on the achievement of the same performance metrics. Share options, once vested, may be exercised by the participant over the period up to seven years from the date of grant.
The average share price for Zurich Insurance Group Ltd shares in 2012 and 2011 was CHF 221.56 and CHF 212.72 respectively.
The Group has provided contractual commitments and financial guarantees to external parties, associates and joint ventures as well as partnerships. These arrangements include commitments under certain conditions to make liquidity advances to cover default principal and interest payments, make capital contributions or provide equity financing.
Guarantees and letters of credit USD 9,104 million of the USD 10,565 million and USD 8,691 million of the USD 10,387 million for financial guarantees and letters of credit as of December 31, 2012 and 2011, respectively, relate to guarantees in the aggregate amount of GBP 5,595 million provided to the directors of a fully owned subsidiary in connection with the rationalization of the Group’s top legal holding structure which resulted in the merger of Zurich Group Holding into Zurich Financial Services Ltd in December 2009. These guarantees will expire in August 2015. In 2012 and 2011, an additional USD 773 million and USD 738 million, respectively, relate to guarantees in the aggregate amount of GBP 475 million which were provided to the directors of a fully owned subsidiary in connection with the repatriation of capital.
The Group is active in numerous countries where insurance guarantee funds exist. The design of such funds varies from jurisdiction to jurisdiction. In some, funding is based on premiums written, in others the Group may be called upon to contribute to such funds in case of a failure of another market participant. In addition, in some jurisdictions the amount of contribution may be limited, for example, to a percentage of the net underwriting reserve net of payments already made.
The Group has commitments to provide collateral on certain contracts in the event of a financial strength downgrading for Zurich Insurance Company Ltd from the current AA– by Standard & Poor’s. Should the rating by Standard & Poor’s fall to A+, then the additional collateral based on information available as of December 31, 2012 and 2011 is estimated to amount to approximately USD 71 million and USD 131 million, respectively.
In common with other groups writing life insurance business in the UK, the Group remains exposed to a number of Conduct of Business issues. While provisions are maintained which reflect management’s best estimate at the balance sheet date of the probable costs and expenses of resolving these matters, significant uncertainty regarding the ultimate cost remains. The main area of uncertainty concerns complaints related to sales advice. The key assumptions used to derive the complaint provisions are the volume of complaints, both those already recorded and an assumption as to the level of future complaints, the percentage of complaints expected to be successful (the uphold rate), the average redress payable for each complaint and the expenses of reviewing each case or complaint. The assumptions used to set the provisions have been based on actual recent experience.
Legal proceedings and regulatory investigations The Group and its subsidiaries are continuously involved in legal proceedings, claims and regulatory investigations arising, for the most part, in the ordinary course of their business operations. The Group’s business is subject to extensive supervision, and companies in the Group are in regular contact with various regulatory authorities. In addition, certain companies within the Group are engaged in the following legal proceedings and regulatory investigations.
Zurich Insurance Group Annual Report 2012 251Consolidated financial statements 26. Fair value of financial assets and financial liabilities
Tables 26.1a and 26.1b compare the fair value of financial assets and financial liabilities with their carrying value.
Cash and cash equivalents 9,098 8,882 9,098 8,882 Available-for-sale securities Debt securities 141,597 130,196 141,597 130,196
Total available-for-sale securities 150,392 138,402 150,392 138,402 Securities at FV through profit or loss Trading
Held-to-maturity debt securities 5,723 6,182 5,012 5,535 Investments in associates and joint ventures 172 161 172 161 Loans and receivables
Deposits made under assumed reinsurance contracts 2,583 2,703 2,588 2,711 Mortgage loans given as collateral – 223 – 223
Liabilities related to investment contracts (1,540) (1,354) (1,305) (1,131) Liabilities related to investment contracts with DPF (5,663) (5,337) (5,903) (5,607)
Deposits received under ceded reinsurance contracts (1,482) (1,477) (1,558) (1,560) Collateralized loans – (223) – (223)
Total investments at FV through profit or loss 120,484 109,099 120,484 109,099
The methods and assumptions used by the Group in determining fair values of financial assets and liabilities are set out in note 4. Depending on the valuation techniques used and whether the underlying assumptions are based on observable market data, financial instruments carried at fair value are classified under the following three levels (the fair value hierarchy).
Table 26.1b in USD millions, as of December 31Fair value (FV) and carrying value of financial assets and financial liabilities – unit-linked
Total available-for-sale securities 48,322 98,395 3,675 150,392 Securities at FV through profit or loss Trading
Total securities at FV through profit or loss 3,163 7,650 1,716 12,530
Total securities at FV through profit or loss 3,673 7,699 1,851 13,224
Table 26.2a in USD millions, as of December 31, 2012Fair value hierarchy – current period
Realized gains/(losses) recognized in income 37 31 8 8 10 – – Unrealized gains/(losses) recognized in income 1 (11) (4) (7) 4 76 (5) 52 Unrealized gains/(losses) recognized in other comprehensive income 165 58 – – – – –
During the year ended December 31, 2012, the Group transferred USD 0.9 billion of debt securities from level 2 to level 3. The transfers were mainly the result of higher price volatility and credit rating downgrades of certain asset-backed securities, resulting in a deterioration of the market activity of the instruments.
Realized gains/(losses) recognized in income 26 500 6 1 23 – – Unrealized gains/(losses) recognized in income 1 (12) (61) 19 (10) 28 16 (27) Unrealized gains/(losses) recognized in other comprehensive income (14) (277) – – – – –
1 Presented as impairments for available-for-sale securities, and net capital gains/(losses) and impairments for securities at fair value through profit and loss on Group investments in the consolidated income statements.
Table 26.3a in USD millionsDevelopment of financial instruments classified under level 3 – current period
Key assumptions Discount margins +20% (95) –20% 97 Prepayment rates –20% (7) +20% 8 Recovery rates –20% (2) +20% 2 Default rates +20% (10) –20% 5
Key assumptions Discount margins +20% (85) –20% 90 Prepayment rates –20% (9) +20% 10 Recovery rates –20% (1) +20% 1 Default rates +20% (3) –20% 3
Table 26.4b as of December 31, 2011Sensitivity analysis of Level 3 ABSs to changes in key assumptions – prior period
Total investments at FV through profit or loss 44,981 59,385 4,733 109,099
Table 26.5a in USD millions, as of December 31, 2012Fair value hierarchy – current period
Table 26.6b in USD millionsDevelopment of financial assets classified under level 3 – prior period
6.15% certificate of contribution, due June 2021 707 707 6.15% certificate of contribution, due June 2021 140 140 6.15% certificate of contribution, due June 2021 60 60 4.65% certificate of contribution, due December 2013 150 150 Various other certificates of contribution 23 23
b) Quota share reinsurance treaties with the Farmers Exchanges The Farmers Exchanges ceded risk through quota share reinsurance treaties to Farmers Reinsurance Company (Farmers Re Co), a wholly owned subsidiary of FGI, and to Zurich Insurance Company Ltd (ZIC).
Auto Physical Damage Quota Share reinsurance agreement The Auto Physical Damage (APD) Quota Share reinsurance agreement (APD agreement) with the Farmers Exchanges provides for annual ceded premiums of USD 1 billion with 20.0 percent assumed by Farmers Re Co (USD 200 million) and 80.0 percent assumed by ZIC (USD 800 million), a 25.8 percent ceding commission for acquisition expenses, and an 8.2 percent ceding commission for unallocated loss adjustment expenses. In addition, Farmers Re Co and ZIC assume a quota share percentage of ultimate net losses sustained by the Farmers Exchanges in their APD lines of business. The APD agreement also includes provisions for additional experience commissions that will depend on loss experience and recoveries below a specified ratio for each year. This experience commission arrangement limits Farmers Re Co and ZIC’s potential underwriting gain on the assumed business to 2.0 percent of premiums assumed plus 20.0 percent of the underwriting gain resulting from a combined ratio under 98.0 percent. The APD agreement can be cancelled after 90 days notice by any of the parties.
Effective January 1, 2012, the APD agreement was replaced with a new APD treaty with substantially the same terms as the prior agreement but with the ceding commission for acquisition expenses ranging between 27.1 percent and 29.1 percent and the ceding commission for unallocated loss adjustment expenses ranging between 8 percent and 10 percent, both based on a previous 5 year average experience. In addition, the experience commission was eliminated.
Farmers Exchanges’ share of ceded premiums amounted to USD 1 billion for both the years ended December 31, 2012 and 2011. Ceded incurred losses and loss adjustment expenses totaled USD 723 million and USD 709 million for the years ended December 31, 2012 and 2011, respectively. Farmers Exchanges’ share of the total commission income was USD 290 million and USD 268 million for the years ended December 31, 2012 and 2011, respectively.
Based on the results for 2012, ceded premiums earned and commissions were USD 3,418 million and USD 1,094 million, respectively, and recoveries totaled USD 2,475 million, for the year ended December 31, 2012.
The Group pursues a customer-centric strategy and is managed on a matrix basis, reflecting both businesses and geography. The Group’s operating 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 is the segment through which the Group provides a variety of motor, home and commercial products and services for individuals, as well as small and large businesses.
Non-Core Businesses include insurance and reinsurance businesses that the Group does not consider core to its operations and that are therefore mostly managed to achieve a beneficial run-off. In addition, Non-Core Businesses includes the Group’s management of property loans and banking activities. Non-core businesses are mainly situated in the U.S., Bermuda, the United Kingdom and Ireland.
The segment information includes the Group’s internal performance measure, business operating profit (BOP). This measure is the basis on which business units are managed. It indicates the underlying performance of the business units by eliminating the impact of financial market volatility and other non-operational variables. BOP reflects adjustments for shareholders’ taxes, net capital gains on investments and impairments (except for the capital markets and property lending/banking operations included in Non-Core Businesses and investments in hedge funds, certain securities held for specific economic hedging purposes and policyholders’ share of investment results for the life businesses), non-operational foreign exchange movements, and significant items arising from special circumstances, including restructuring charges, charges for litigation outside the ordinary course of business and gains and losses on divestments of businesses.
Net earned premiums and policy fees 29,195 29,076 12,621 10,865 4,418 2,984 66 83 455 (108) – – 46,755 42,899 Farmers management fees and other related revenues – – – – 2,846 2,767 – – – – – – 2,846 2,767 Net investment result on Group investments 2,587 2,807 4,833 4,575 124 133 396 524 318 987 (658) (847) 7,599 8,180
Net investment result on unit-linked investments – – 9,703 (3,548) – – – – 565 4 – – 10,268 (3,544)
Losses and loss adjustment expenses, net 20,547 20,919 – 59 3,198 2,105 (1) 1 27 (622) (3) 3 23,769 22,465 Life insurance death and other benefits, net 1 (20) 20 9,592 9,444 – – 56 57 353 1,097 3 (3) 9,983 10,615
Gross written premiums and policy fees 35,610 34,572 13,590 11,583 4,361 3,529 116 141 475 594 (175) (220) 53,977 50,200 Less premiums ceded to reinsurers (5,874) (5,325) (710) (682) – – (50) (59) (21) (704) 175 220 (6,481) (6,550)
Policyholder dividends and participation in profits, net 4 9 10,781 (2,826) – – – – 694 133 – – 11,479 (2,685) Income tax expense/(benefit) attributable to policyholders – – 194 (242) – – – – – – – – 194 (242) Underwriting and policy acquisition costs, net 5,833 5,581 2,804 2,029 1,383 902 – 16 2 9 (9) (20) 10,014 8,516 Administrative and other operating expense (excl. depreciation / amortization) 3,894 3,674 2,536 2,394 1,334 1,290 1,148 1,193 147 213 (1,483) (1,490) 7,576 7,274 Interest credited to policyholders and other interest 18 24 403 395 – – 6 10 52 57 (3) (7) 475 479 Restructuring provisions and other items not included in BOP (113) (238) (113) (130) 3 (10) (24) (107) (1) 1 – – (248) (483) Total BOP benefits, losses and expenses (before interest, depreciation and amortization) 30,163 29,988 26,196 11,123 5,918 4,288 1,186 1,170 1,274 888 (1,495) (1,517) 63,243 45,940 Business operating profit (before interest, depreciation and amortization) 2,611 2,817 2,007 1,781 1,571 1,660 207 357 175 100 (678) (864) 5,892 5,851 Depreciation and impairments of property and equipment 110 85 32 30 53 56 15 14 1 5 – – 210 191 Amortization and impairments of intangible assets 211 278 483 315 100 118 79 93 1 1 – – 874 805
Business operating profit before non-controlling interests 2,149 2,245 1,471 1,380 1,414 1,486 (925) (835) 129 (7) – – 4,238 4,269 1 The Global Life segment includes approximately USD 603 million and USD 936 million of gross written premiums and future life policyholders‘ benefits for certain universal life-type contracts in the Group’s Spanish operations for the years ended December 31, 2012 and 2011, respectively (see note 3).
Revenues/(expenses) not included in BOP: Net capital gains/(losses) on investments and impairments, net of policyholder allocation 1,051 526 352 407 18 (12) (149) 230 41 37 1,312 1,187 Net gain/(loss) on divestments of businesses (38) (5) 3 16 – – 1 (5) – – (34) 6
Net income before income taxes 3,049 2,528 1,906 1,431 1,435 1,464 (1,097) (716) 169 31 5,462 4,738 Income tax expense (1,496) (963)
Investments in associates and joint ventures 7 6 69 65 – – 9 6 89 84 – – 172 161
Investments for unit-linked contracts – – 113,349 102,768 – – – – 11,877 11,508 – – 125,226 114,276
Gross written premiums and policy fees 8,609 7,949 10,003 9,777 11,882 12,932 5,603 4,425 345 401 (832) (912) 35,610 34,572 Net earned premiums and policy fees 5,499 5,350 7,634 7,644 11,772 12,647 4,282 3,377 9 58 – – 29,195 29,076 Insurance benefits and losses, net 4,291 4,564 5,453 5,126 8,225 8,980 2,583 2,462 (25) (192) – – 20,527 20,939 Policyholder dividends and participation in profits, net 1 – 3 8 – – – – – – – – 4 9
Net capital gains/(losses) and impairments on investments 17 2 44 8 1 (1) 9 – – – – – 71 8 Net non-technical result (excl. items not included in BOP) (142) (133) (199) (255) (414) (351) (110) (118) (37) (44) – 15 (901) (886) Business operating profit before non-controlling interests 495 169 698 1,048 683 935 224 (147) 49 240 – – 2,149 2,245
North America United States 12,223 11,494 Canada 928 930 Bermuda 10 – North America 13,160 12,424 3,343 2,838 Europe United Kingdom 3,899 3,878 Germany 3,110 3,387 Switzerland 3,243 3,408 Italy 1,879 2,122 Spain 1,438 1,671 Rest of Europe 2,718 2,750 Europe 16,287 17,215 4,279 4,150 Latin America Argentina 393 278 Brazil 920 571 Chile 470 270 Mexico 600 291 Venezuela 257 244 Rest of Latin America 34 34 Latin America 2,674 1,687 – – Asia-Pacific Australia 1,178 1,114 Hong Kong 210 182 Japan 780 736 Taiwan 129 126 Rest of Asia-Pacific 420 288 Asia-Pacific 2,717 2,446 581 590
Africa South Africa 460 539 Morocco 125 130 Africa 585 669 19 –
Rest of Latin America 5 5 Latin America 561 534 Asia-Pacific Australia 74 79 Hong Kong 13 6
Rest of Asia-Pacific 4 4 Asia-Pacific 128 140 Middle East 43 35 Africa South Africa 15 19
Net investment result on unit-linked investments 24 (47) 1,175 (16) 7,612 (2,572) 761 (840) 131 (74) – – 9,703 (3,548)
Net investment income on Group investments 312 330 254 134 3,225 3,562 188 107 11 13 – – 3,991 4,146 Net capital gains/(losses) and impairments on Group investments – – 272 – 552 396 18 33 – – – – 842 429
Business operating profit before non-controlling interests 244 227 277 49 817 981 133 123 – – – – 1,471 1,380 1 Europe includes approximately USD 603 million and USD 936 million of gross written premiums and future life policyholders‘ benefits for certain universal life-type contracts in the Group’s Spanish operations for the years ended December 31, 2012 and 2011, respectively (see note 3).
Asia-Pacific and Middle East Hong Kong 86 89 133 146 Taiwan – – 3 –
1 Includes business written under freedom of service and freedom of establishment in Europe. 2 Mainly includes business written through licenses into Asia-Pacific and Middle East. 3 Includes business written through licenses into all regions.
Zurich International Life 20 5 Asia-Pacific and Middle East 158 127 1 Includes assets relating to business written under freedom of services and freedom of establishment in Europe.
Farmers Management Services Management fees and other related revenues 2,846 2,767 Management and other related expenses 1,467 1,434 Gross management result 1,378 1,333 Other net income (excl. items not included in BOP) 62 36 Business operating profit before non-controlling interest 1,441 1,370 Business operating profit 1,441 1,370 Farmers Re Gross written premiums and policy fees 4,361 3,529 Net earned premiums and policy fees 4,418 2,984 Insurance benefits and losses, net (3,198) (2,105) Total net technical expenses (1,383) (903) Net underwriting result (163) (23) Net non-technical result (excl. items not relevant for BOP) 65 58 Net investment income 72 82 Business operating profit before non-controlling interests (26) 116 Business operating profit (26) 116 Farmers business operating profit 1,414 1,486
Gross written premiums and policy fees 108 133 8 8 – – 116 141 Net earned premiums and policy fees 58 74 8 8 – – 66 83
Insurance benefits and losses, incl. PH dividends, net 57 57 (1) 1 – – 56 58 Underwriting and policy acquisition costs, net – 15 – – – – – 16 Administrative and other operating expense (excl. depreciation / amortization) 170 170 1,147 1,156 (169) (133) 1,148 1,193 Other expenses (excl. items not included in BOP) (14) (91) (4) (5) – – (18) (96) Depreciation, amortization and impairments of property, equipment and intangible assets 8 3 86 104 – – 94 107
Table 29.12 in USD millions, for the years ended December 31Non-Core Businesses – Overview
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 ZCM Holdings (Bermuda) Limited Hamilton Non-Core Businesses 100 100 USD 137.0 Zurich International (Bermuda) Ltd. Hamilton General Insurance 100 100 USD 9.9 Brazil Zurich Santander Brasil Vida e Previdência S.A. 2 São Paulo Life Insurance 51 51 BRL 1,659.2
Chile Chilena Consolidada Seguros de Vida S.A. Santiago Global Life 98.98 98.98 CLP 24,484.0 Zurich Santander Seguros de Vida Chile S.A. 2 Santiago Global Life 51 51 CLP 108,638.5 Cyprus Zurich Insurance Holding (Cyprus) Ltd. 3 Nicosia General Insurance 100 100 RUB 5.6 Germany Deutscher Herold Aktiengesellschaft 4 Bonn Global Life 79.83 79.83 EUR 18.4 Zürich Beteiligungs-Aktiengesellschaft (Deutschland) Frankfurt General Insurance 100 100 EUR 152.9 Zurich Deutscher Herold Lebensversicherung Aktiengesellschaft Bonn Global Life 86.37 86.37 EUR 68.5 Ireland Zurich Life Assurance plc Dublin Global Life 100 100 EUR 17.5 Zurich Financial Services EUB Holdings Limited Dublin Non-Core Businesses 100 100 GBP 0.001 Zurich Insurance plc Dublin General Insurance 100 100 EUR 8.2
Italy Zurich Investments Life S.p.A. Milan Global Life 100 100 EUR 164.0 Zurich Life and Pensions S.p.A. Milan Global Life 100 100 EUR 40.5 Zurich Life Insurance Italia S.p.A. Milan Global Life 100 100 EUR 85.8 Luxembourg Zurich Eurolife S.A. Bertrange Global Life 100 100 EUR 27.0
South Africa Zurich Insurance Company South Africa Limited 5 Johannesburg General Insurance 84.05 84.05 ZAR 3.0 Spain Bansabadell Pensiones, E.G.F.P, S.A. Barcelona Global Life 50 50 EUR 7.8 Bansabadell Seguros Generales, S.A. de Seguros y Reaseguros Barcelona General Insurance 50 50 EUR 10.0 Bansabadell Vida S.A. de Seguros y Reaseguros Barcelona Global Life 50 50 EUR 43.9 Zurich Latin America Holding S.L. – Sociedad Unipersonal 2 Barcelona
Taiwan Zurich Insurance (Taiwan) Ltd. Taipei General Insurance 99.73 99.73 TWD 2,000.0 Turkey Zurich Sigorta A.S. Istanbul General Insurance 100 100 TRY 147.8 United Kingdom
Zurich International Life Limited Douglas, Isle of Man Global Life 100 100 GBP 105.6 Zurich Specialties London Limited Fareham, England Non-Core Businesses 100 100 GBP 150.0
Zurich Insurance Group. 5 Listed on the Johannesburg Stock Exchange. On December 31, 2012, the company had a market capitalization of ZAR 3,04 billion (ISIN Number 000094496). 6 The results of the operating activities are included in the General Insurance and Global Life segments, whereas the headquarter’s activities are included in Other Operating
Businesses. 7 The results of the operating activities are included in the Global Life segment, whereas the headquarter’s activities are included in Other Operating Businesses. 8 The ownership percentages in Farmers Group, Inc. and its fully owned subsidiaries have been calculated based on the participation rights of Zurich Insurance Group in a situation of liquidation, dissolution or winding up of Farmers Group, Inc.
Auditor’s responsibility Our responsibility is to express an opinion on these Consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards as well as the International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the Consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation and fair presentation of the Consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the Consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Richard Burger Stephen O’Hearn Audit expert Global relationship partner Auditor in charge
Embedded value report – executive summary 289 1. Analysis of embedded value earnings 290 2. Free surplus 292 3. New business 293 4. Expected contribution and transfer to shareholders’ net assets 297 5. Operating, economic and other non-operating variances 298 6. Acquisitions, capital movements and adjustments 302 7. Value of business in-force 304 8. Reconciliation of IFRS shareholders’ equity to embedded value 305 10. Non-core life business 307 11. Group MCEV 308 12. Embedded value methodology 309 13. Embedded value assumptions 315 Appendix: Embedded value tables 320 Statement by Directors 324 Auditor’s report on embedded value 325
New business value of USD 890 million has decreased by USD 90 million or 9 percent compared with 2011. After adjusting for the transitional impact of corporate protection business renewals, the new business value on a local currency basis was flat compared with 2011. New business value for the acquired businesses of Zurich Santander and Zurich Insurance Malaysia Berhad (ZIMB) was USD 195 million for the year 2012. New business for these businesses has not been included in the Global Life new business result. See section 6 for further details.
Embedded value earnings were USD 2,150 million, generating a return on embedded value of 14.0 percent. This increase was the result of the strong operating earnings and favorable economic variances.
in USD millions, for the years ended December 31Embedded value key results
The graph and table below show how the embedded value has moved from USD 15,846 million to USD 18,861 million over the 2012 calendar year. Each movement is described in its own section of the report as detailed on the graph below.
Embedded value development in USD millions, for the year ended December 31, 2012
Dividends & capital movements start of period (342) (99) (442) (92) (534) (525)
1 As noted in Section 12 c), the UK’s required capital and free surplus allow for a Pillar 2 basis.
In North America, embedded value decreased by USD 186 million. Dividends and negative impacts from assumption changes outweigh positive contributions from new business value and the expected return on the opening position. Dividends to the Group were USD 236 million.
In Spain, embedded value increased by USD 117 million due to continued strong new business performance and a model enhancement.
In Asia-Pacific and Middle East, embedded value increased by USD 578 million. The main drivers were the inclusion of the ZIMB embedded value, contributing USD 340 million, and new business value of USD 125 million from the existing business in the region.
In Other, the embedded value increased by USD 95 million mainly due to new business value contribution.
(% SM) 1 Free surplus Free surplus of which: Asia-Pacific and Middle East 1,277 877 117.3% 400 259 1 SM is the local minimum solvency margin.
In North America, free surplus reduced mainly from dividend payments to the Group of USD 236 million.
In Latin America, free surplus increased by USD 345 million, mainly as a result of the inclusion of the Zurich Santander business. Without the inclusion of Zurich Santander business free surplus decreased by USD 15 million as capital was used to invest in the region.
In the UK, free surplus increased by USD 262 million mainly due to a release of required capital.
In Ireland, free surplus decreased by USD 32 million due to business development costs.
In Spain, free surplus increased mainly due to positive investment performance and a capital transfer from the Group.
In Rest of Europe, free surplus increased by USD 299 million. This was mainly due to positive investment variances as credit spreads narrowed in Italy and Portugal.
In Asia-Pacific and Middle East, free surplus increased mainly due to the inclusion of the ZIMB business.
in USD millions, as of December 31, 2012 and December 31, 2011
New business margin (% of APE) 21.4% 26.0% 17.9% 24.1% 22.1% 27.1% 26.8% 24.9% 20.5% 24.5% New business margin (% of PVNBP) 2.4% 2.9% 2.5% 2.4% 2.5% 3.2% 3.4% 3.1% 2.3% 2.9%
1 APE is measured as new annual premiums plus 10 percent of new single premiums. 2 PVNBP is measured as new single premiums plus the present value of new annual premiums.
Overall in Europe, APE reduced by USD 345 million or 8 percent on a local currency basis. Although APE was down across the region, Switzerland and Ireland increased APE compared with 2011. Loss of margin in Germany and the decrease in APE were the main drivers of reduced new business value. This was partially offset by increased margins in the UK, Switzerland, Spain and Italy. Overall, new business value reduced by USD 93 million or 13 percent on a local currency basis.
In the UK, APE decreased by USD 41 million or 2 percent on a local currency basis. The main driver was a reduction in sales of savings business. However there was an increase in margin due to changes in tax legislation, protection product repricing and improved utilization of reinsurance. New business value increased by USD 41 million or 28 percent on a local currency basis.
In Ireland, APE increased by USD 24 million or 16 percent on a local currency basis. Domestic APE reduced due to the challenging domestic Irish market. Cross border APE increased by over 50 percent, mainly due to sales in Italy. Total new business value reduced by USD 1 million, although it increased by 7 percent on a local currency basis.
For Asia-Pacific and Middle East, the APE reduced by USD 60 million or 11 percent on a local currency basis. This was driven by lower sales of unit-linked business. New business value reduced by USD 11 million or 7 percent on a local currency basis.
Expected contribution at reference rate The expected contribution at reference rate is the projected change in the embedded value over the year using risk-free investment returns applicable at the start of the year. Expected contribution in relation to risk-free rates was higher in 2012 compared with 2011.
Expected contribution in excess of reference rate The expected contribution in excess of reference rate is the additional value expected to be created if “real world” expected investment returns were to emerge. The expected return in excess of the risk-free rate on sovereign debt in some European countries has increased compared with 2011.
Transfer to shareholders’ net assets The expected transfer to shareholders’ net assets shows the profits expected to emerge during the year in respect of business that was in-force at the start of the year. The net effect on embedded value is zero, as the reduction in the value of business in-force is offset by an increase in shareholders’ net assets.
Embedded value report continued 5. Operating, economic and other non-operating variances
Other non-operating variances of which: Asia-Pacific and Middle East (50) (4) (16) 86 (62)
• Mortality and morbidity experience increased embedded value by USD 92 million. The main positive experience variances were USD 33 million in the UK and USD 34 million in Latin America.
• Persistency experience decreased embedded value by USD 159 million. The difficult market conditions in Ireland and Asia-Pacific and Middle East together reduced embedded value by USD 89 million. Experience in Latin America further reduced embedded value by USD 24 million with the loss of some large policies in Mexico.
• Expense experience reduced embedded value by USD 120 million. The main drivers of this were USD 25 million in North America, USD 34 million in Latin America and USD 33 million in the UK.
• Persistency assumption updates negatively impacted embedded value by USD 254 million. The main drivers were North America and Ireland contributing USD 154 million and USD 84 million respectively.
• Other assumption changes increased embedded value by USD 85 million, mainly as a result of a restructuring of reinsurance in the UK and increased fund management charges in Asia-Pacific and Middle East.
Embedded value split of other operating variances in USD millions, for the year ended December 31, 2012
• Modeling changes increased embedded value by USD 525 million. In the UK, various model enhancements mainly relating to savings business improved embedded value by USD 249 million. In Germany a model review to reflect the impact of the persistent economic environment and the changing regulatory framework had a net positive impact on embedded value of USD 327 million. In Spain and Switzerland, general enhancements to the valuation models increased value by USD 128 million and USD 75 million respectively. These were offset by USD 186 million in North America mainly as a result of a change in the modeling of a captive arrangement.
• One-off expenses reduced embedded value by USD 88 million, mainly driven by efficiency improvement and other projects in the UK and Ireland.
• Other operating variances not captured elsewhere increased embedded value by USD 82 million. The main positive contribution was in the UK where more accurate accruals for commissions meant writing off provisions no longer needed as well as improved utilization of reinsurance which increased value by USD 42 million in total.
Economic variances Economic variances arise from the differences between the actual experience during the period and those implied by the economic assumptions at the start of the period. Economic variances also include the impact of changes in assumptions in respect of future economic experience at the end of the period. In total, economic variances increased embedded value by USD 405 million in 2012.
In 2012, both risk free rates and the liquidity premium spread reduced for the major currencies and in particular the euro and the pound sterling. The yields on sovereign debt were volatile across Europe, but spreads have generally reduced over the year. These movements are most significant for spread business and traditional participating business and as a result investment performance was positive in Italy and Portugal. In Switzerland, revaluation of the real estate portfolio had a positive impact. The UK suffered from performance below expectations in their unit-linked funds. Yield curve movements had some negative impacts on the valuation of future profits, most notably in Italy.
Outside Europe, reduced interest rates positively affected the economic variance on protection business in North America and in Asia-Pacific and Middle East.
North America (236) Latin America 864 Europe (424) of which: United Kingdom 19 Germany (35) Switzerland (365) Ireland 13 Spain (48) Rest of Europe (8)
In North America, a dividend of USD 236 million was paid to the Group.
Non-controlling interests The adjustment to embedded value to remove non-controlling interests from new business value is included here and it largely arose from the interests of non-controlling shareholders in Spain and Germany.
Maturity profile of value of business in-force The value in-force (VIF) maturity profile shows when the VIF profits are expected to emerge as free surplus. It does not include the release of required capital to free surplus which usually accompanies the emergence of the VIF profit. The VIF emergence is after frictional costs, cost of residual non-hedgeable risk and the time value of financial options and guarantees.
The VIF maturity profile shows that 35 percent of the VIF should emerge as free surplus in the next five years and 60 percent within the next ten years.
The increase in the value of business in-force in the next five years is partly due to the inclusion of Zurich Santander, which has a shorter profit signature. See section 6 for further details.
Goodwill (0.4) DAC / DOC (15.2) Other intangibles & PVP (4.4) DFEF 6.1
Plus IAS 19 Liabilities 1 0.9 Less non-controlling interests 2 0.1 Other adjustments 3 0.4 Embedded value shareholders’ net assets 7.5 Value of business in force 11.4 Embedded value 4 18.9 1 Pension scheme liabilities are included in the IFRS equity and not in the embedded value shareholders’ net assets. 2 Primarily includes the Spanish and Santander non-controlling interests. 3 Other adjustments include tax differences, policyholder share of intangibles, reserving differences and asset valuation differences. 4 Embedded value includes Zurich Santander and ZIMB. See section 6 for details.
in USD billions, as of December 31, 2012Reconciliation of Global Life IFRS shareholders’ equity to embedded value
In each sensitivity calculation, all other assumptions remain unchanged except where they are directly affected by the revised conditions. The results include the impact of assumption changes on the time value of financial options and guarantees. The 100 basis points decrease in risk free yield curve increases the value of some products, such as term assurance, with fixed future cash flows discounted at lower rates. This increase is offset by the reduction in the value of other products, such as those with profit sharing, due to the lower assumed investment returns on the investment of net cash flows.
Fin an cial info rm atio n 10. Non-core life business
The Group has estimated the embedded value of these businesses based on the same principles as for the Global Life business, including deductions for the time value of financial options and guarantees, frictional costs and the cost of residual non-hedgeable risk, but using more approximate models.
Shareholders’ net assets 0.7 0.5 Value of business in-force 0.1 0.2
The Group MCEV is presented in the following table as the Global Life covered business which is valued under the MCEV Principles and the non-covered businesses which are valued at the unadjusted IFRS net asset value. Non-covered businesses include the non-core life businesses managed outside Global Life and all other Group businesses including General Insurance and Farmers.
Other movements in IFRS net equity 2 (0.0) 0.5 0.4 1 For non-covered business this is set equal to the Net Income After Tax (NIAT) over the period. 2 For non-covered business this is set equal to non-controlling interests and the change in Other Comprehensive Income (OCI) and unrealised gains and losses excluding the foreign currency translation adjustment over the period.
Fin an cial info rm atio n 12. Embedded value methodology
Embedded value represents the shareholders’ interests in the entities included in Global Life as set out in the Group’s Consolidated IFRS financial statements. Embedded value excludes any value from future new business.
a) Covered business Covered business includes all business written by companies that are included in the Global Life segment, unless otherwise stated. In particular: • life and critical illness insurance; • savings business (with profit, non-profit and unit-linked); • pensions and annuity business; and
For certain smaller companies in Global Life, no embedded value has been calculated but these companies have been included in the embedded value at their shareholders’ net asset value, as calculated in accordance with the Group’s IFRS accounting policies. The contribution from these companies to embedded value is approximately 2 percent.
b) Reporting of embedded value In line with the MCEV Principles, the embedded value is split between shareholders’ net assets, including free surplus and required capital, and the value of business in-force.
Shareholders’ net assets are based on local statutory and regulatory accounting. Adjustments are made to the embedded value where appropriate, for example in respect of any unrealized gains attributable to shareholders. Any such adjustments are made consistently with the calculation of the value of business in-force.
Frictional costs (FC) reflect a deduction for the cost of holding shareholder capital. Under the Group’s market consistent framework, the FC represents tax in respect of future investment income on total required capital plus investment management costs. In Germany, the policyholders’ share of investment income on the capital is also included.
The allowance for FC value is included both in the value of business in-force and in the new business value. For new business, FC is applied to the minimum solvency capital required to be held in respect of that business.
Where appropriate, the calculation of the TVFOG makes allowance for: • dynamic actions that would be taken by management under different economic simulations, for example to implement a life business’ investment strategy; and
CRNHR is calculated as a charge on the capital held for residual non-hedgeable risks. This is calculated according to Zurich’s internal risk based capital model by applying 2000 shocks to the embedded value assumptions. To align with the MCEV Principles the risk based capital is scaled to a 99.5 percent confidence level by using empirical distributions where available, or by assuming probability distributions as appropriate.
The new business is valued at the point of sale. Explicit allowance is made for frictional costs, time value of financial options and guarantees, and CRNHR. New business value is valued using actual new business volumes, except in Germany. See Section 12 f) for details.
Germany has followed an approach where liability model points were set up in advance, using the structure of a previous run, and then projected to valuation date values by scaling to match the expected balance sheet figures. The new business model points are determined quarterly. For each quarter new business model points are scaled to the expected APE in the quarter.
h) Economic scenario generator All operations use actual yield curves observable as of the valuation date for the calculation of the certainty equivalent value of business in-force.
The calculations of the TVFOG is based on stochastic simulations using an economic scenario generator provided by Barrie & Hibbert. The outputs (“simulations”) have been calibrated to conform to the economic parameters specified by the Group.
Fin an cial info rm atio n k) Consolidation adjustments Where a reinsurance arrangement exists between two life companies within Global Life, the value of the reinsurance is shown in the embedded value of the ceding company.
Embedded value is shown net of non-controlling interests. Where the Group has a controlling interest in a subsidiary company, the new business value and the premium information are shown gross of non-controlling interests. The non-controlled share of new business value is eliminated through “Non-controlling interests”.
n) Employee pension schemes Actuarial gains and losses arising from defined benefit pension and other defined benefit post-retirement plans are recognized in full in the period in which they occur and are presented on a separate line in the statement of comprehensive income in the Group’s consolidated financial statements, with a liability recognized for employee benefit deficits under IAS 19. This adjustment has not been made in the detailed embedded value described in this embedded value report. If the adjustment had been made the embedded value at the valuation date would have been lower by USD 892 million. The actuarial and economic assumptions used for this adjustment are consistent with those used for the equivalent allowance made in the Group’s Consolidated financial statements.
p) Change in legislation or solvency regime The impacts of changes in legislation or solvency regimes are included in economic variance for the analysis of movement when they occur.
q) Translation to Group presentation currency To align embedded value reporting with the Group’s consolidated IFRS financial statements, relevant results have been translated to the Group presentation currency, U.S. dollar, using average exchange rates for the period. This applies to new business value and new business volumes (APE and PVNBP) for the current period and comparative figures. This approach has also been applied to the analysis of movement. Valuations as at a specified date are translated at end-of-period exchange rates.
The rates can be found in note 1 of the audited Consolidated financial statements as of December 31, 2012.
A 100 basis points increase and decrease was applied to the risk free yield curve across all durations.
Choice of “risk free yield curve” The risk free yield curve is derived from mid-market swap rates applicable to each economy at the valuation date. These curves were used to extract forward reinvestment yields that are used for all asset classes. The yield curves are consistent with the assumptions used by investment banks to derive their option prices and their use ensures consistency with the derivation of implied volatilities. They also have the advantage of being available for most of the markets in which the Group operates. Domestic yield curves are used by businesses in other countries, except Hong Kong and Argentina which use the U.S. dollar, as their liabilities are principally U.S. dollar-dominated.
Liquidity premiums The CFO Forum engaged Barrie & Hibbert who estimated a liquidity premium proxy to be equal to 50 percent times the (credit spread over swaps less 40 basis points) where credit spreads over swaps are equal to the credit spread on a representative corporate bond index less the swap rate for each particular currency.
“Return on opening embedded value” (as shown in the Embedded value key results) The return on opening embedded value is calculated as the sum of the annualized new business value, annualized expected contributions, economic variances for the year to date and operating and non-operating variances for the year to date divided by the opening embedded value less the start of period dividend and capital movements.
Expense assumptions Management expenses have been analyzed between expenses related to acquisition of new business, the maintenance of in-force business and, where appropriate, one-off project costs. Future expense assumptions allow for expected levels of maintenance expenses. In addition, Headquarters’ expenses relating to covered business have been allocated to business units and are reflected in assumed future expenses.
Dividends and capital movements end of period (127) (198) 869 1 (59) 174 371 (33) 6 2 1,059 (55)
New business information: Annual premiums 110 90 704 262 1,374 1,475 403 446 86 107 2,677 2,379
New business value Global Life 109 60 99 71 453 547 125 136 103 167 890 980
New business margin (% of APE) 87.1% 54.3% 13.2% 22.6% 17.9% 19.0% 26.9% 25.9% 70.1% 103.7% 22.1% 24.5% New business margin (% of PVNBP) 8.9% 5.9% 4.0% 5.3% 1.7% 2.0% 4.1% 4.6% 6.6% 12.5% 2.5% 2.9%
Embedded value information: Opening embedded value 3,692 3,633 2,058 2,047 2,126 2,323 1,156 1,256 164 279 506 794 9,701 10,334 Dividends and capital movements start of period 6 (344) (1) 31 (355) (162) 13 – (19) – (8) 11 (365) (464)
New business value Global Life 195 154 37 171 25 9 66 67 94 107 36 38 453 547
in USD millions, for the years ended December 31Embedded value results Europe
We have audited the Embedded Value Report (“EV Report”) of Zurich Insurance Group Ltd included on pages 289 to 324 of the Annual Report 2012, for the year ended December 31, 2012. The embedded value information included in the EV Report has been prepared in accordance with the Market Consistent Embedded Value (“MCEV”) Principles and Guidance issued by the European Insurance CFO Forum, as described on pages 309 to 314.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the EV Report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the EV Report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation of the EV Report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of the principles used and the reasonableness of significant estimates made, as well as evaluating the adequacy of the overall presentation of the EV Report.
Opinion In our opinion, the EV Report of Zurich Insurance Group Ltd for the year ended December 31, 2012 is prepared, in all material respects, in accordance with the MCEV Principles and Guidance.
Basis of preparation Without modifying our opinion, we draw attention to sections 12 and 13 of the EV Report, which describe the basis of the EV methodology and assumptions. The EV Report is prepared to assist Zurich Insurance Group Ltd to comply with the MCEV Principles and Guidance referred to above. As a result, the EV Report may not be suitable for another purpose. This report does not extend to any financial statements of Zurich Insurance Group Ltd.
The Annual General Meeting on March 29, 2012, approved a gross dividend of CHF 17.00 per share to be paid free of Swiss withholding tax to the shareholders out of the capital contribution reserve.
Revenues Interest income 3 100,581 241,003 Dividend income 2,400,000 1,521,569 Other financial income 4 79,495 100,735
Total expenses (216,629) (902,731) Net income after taxes 2,382,137 960,686 in CHF thousands, for the years ended December 31
Non-current assets Investments in subsidiaries 9 11,779,569 11,854,569 Subordinated loans to subsidiaries 10 4,877,074 4,876,097 Total non-current assets 16,656,643 16,730,666 Current assets Cash and cash equivalents 12,786 13,432 Loans to subsidiaries 646,367 491,300 Receivables from third parties 808 856 Accrued income from third parties 14 14 Accrued income from subsidiaries 306 207,579 Derivatives with subsidiaries – 4,084 Total current assets 660,281 717,265 Total assets 17,316,924 17,447,931
Short-term liabilities Loans from subsidiaries – 202,794 Other liabilities to subsidiaries 668 – Other liabilities to third parties 865 1,511 Other liabilities to shareholders 607 377 Accrued liabilities to subsidiaries 14,227 14,578 Accrued liabilities to third parties 63,622 49,713 Derivatives with subsidiaries 3,065 3,315 Total short-term liabilities 83,054 272,288 Long-term liabilities Long-term loans from subsidiaries 479,029 490,834
Capital contribution reserve 13 10,688,412 12,981,667 General capital contribution reserve 10,359,588 12,646,757 Reserve for treasury shares 14 328,824 334,910
Notes to the financial statements 1. Basis of Presentation Zurich Insurance Group Ltd (the Company) presents its financial statements in accordance with Swiss law.
3. Interest income Interest income is earned mainly on the Company’s subordinated loan of CHF 4,832 million with its subsidiary Zurich Insurance Company Ltd. The decrease of CHF 140 million compared to 2011 is the result of lower interest earned for 2012 on this loan.
4. Other financial income Other financial income includes primarily foreign exchange gains and net gains on derivatives with subsidiaries.
5. Other income Other income for 2012 represents the partial release of CHF 18.7 million of the irrevocable commitment made by the Company on behalf of the Zurich Insurance Group to the Z Zurich Foundation in 2011, as an other Group company made the 2012 payment.
6. Administrative expense Administrative expense includes directors’ fees of CHF 4.1 million for both years ended December 31, 2012 and 2011 and overhead expenses of CHF 10.0 million for for both years ended December 31, 2012 and 2011. In addition, administrative expense for 2011 includes CHF 75.3 million in respect of an irrevocable commitment made by the Company on behalf of the Zurich Insurance Group to the Z Zurich Foundation to fund its charitable activities.
Zurich Insurance Company Ltd 11,088,466 100.00 11,088,466 100.00 Zurich Financial Services EUB Holdings Ltd 532,936 99.90 607,936 99.90 1 in CHF thousands
The investment in Zurich Financial Services EUB Holdings Limited was impaired by CHF 75 million in 2012 compared with CHF 256 million in the previous year.
Zurich Insurance Group Ltd knows of no event that would require it to satisfy any of these guarantees or to take action under a support agreement.
12. Shareholders’ equity a) Issued share capital In 2012, there was no change to the ordinary share capital. At the Annual General Meeting on March 29, 2012, 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 March 29, 2014. In 2011, there were no changes to the ordinary share capital or to the authorized share capital.
b) Authorized share capital Until March 29, 2014, the Board of Directors of Zurich Insurance Group Ltd is authorized to increase the share capital by an amount not exceeding CHF 1,000,000 by issuing up to 10,000,000 fully paid registered shares with a nominal value of CHF 0.10 each. An increase in partial amounts is permitted. The Board of Directors determines the date of issue of such new shares, the issue price, type of payment, conditions for exercising pre-emptive rights, and the beginning of dividend entitlement.
The Board of Directors may issue such new shares by means of a firm underwriting by a banking institution or syndicate with a subsequent offer of those shares to current shareholders. The Board of Directors may allow the expiry of pre-emptive rights which have not been exercised, or it may place these rights as well as shares, the pre-emptive rights of which have not been exercised, at market conditions.
c) Contingent share capital Capital market instruments and option rights to shareholders The share capital of Zurich Insurance Group Ltd may be increased by an amount not exceeding CHF 1,000,000 by the issuance of up to 10,000,000 fully paid registered shares with a nominal value of CHF 0.10 each (i) by exercising of conversion and/or option rights which are granted in connection with the issuance of bonds or similar debt instruments by Zurich Insurance Group Ltd or one of its Group companies in national or international capital markets; and/or (ii) by exercising option rights which are granted to current shareholders. When issuing bonds or similar debt instruments connected with conversion and/or option rights, the pre-emptive rights of the shareholders will be excluded. The current owners of conversion and/or option rights shall be entitled to subscribe for the new shares. The conversion and/or option conditions are to be determined by the Board of Directors.
Employee participation On January 1, 2011, the contingent share capital, to be issued to employees of Zurich Insurance Group Ltd and its subsidiaries, amounted to CHF 470,836.30 or 4,708,363 fully paid registered shares with a nominal value of CHF 0.10 each. On January 1, 2012, the contingent share capital, to be issued to employees of Zurich Insurance Group Ltd and its subsidiaries, amounted to CHF 390,943.70 or 3,909,437 fully paid registered shares with a nominal value of CHF 0.10 each.
During 2012 and 2011, 914,301 shares and 798,926 shares, respectively, were issued to employees out of the contingent share capital. Of the total 914,301 registered shares issued to employees during the year 2012, 693,429 shares were issued in the period from January 1, 2012 to March 31, 2012 and 220,872 registered shares were issued as from April 1, 2012, to December 31, 2012. As a result, on December 31, 2012 and 2011, respectively, the remaining contingent share capital, which can be issued to employees of Zurich Insurance Group Ltd and its subsidiaries, amounted to CHF 299,513.60 and CHF 390,943.70 or 2,995,136 and 3,909,437 fully paid registered shares, respectively, with a nominal value of CHF 0.10 each. The pre-emptive rights of the shareholders, as well as the right for advance subscription, are excluded. The issuance of shares to employees is subject to one or more regulations to be issued by the Board of Directors and take into account performance, functions, levels of responsibility and criteria of profitability. Shares may be issued to the employees at a price lower than that quoted on the stock exchange.
1 Of this amount CHF 4,037 thousands may not qualify for Swiss withholding tax exempt payments to shareholders according to the current treatment of issuance stamp tax by the Federal tax administration.
14. Capital contribution reserve (reserve for treasury shares) This reserve corresponds to the purchase value of all Zurich Insurance Group Ltd shares held by companies in the Zurich Insurance Group as shown in the table below.
Additions during the year 120 19 100 20 Sales during the year (25,117) (6,105) (25,788) (6,250)
17. Remuneration of the Board of Directors and the Group Executive Committee This note sets out details of the remuneration of the Board of Directors and of the members of the Group Executive Committee (GEC) in accordance with the information required by articles 663bbis and 663c paragraph 3 of the Swiss Code of Obligations. This information should be read in connection with the unaudited Remuneration report, set out on pages 56 to 81 in which additional details of the remuneration principles and architecture can be found.
The remuneration paid to the Directors for their Board membership of Zurich Insurance Group Ltd, the holding company of the Group, and Zurich Insurance Company Ltd is paid entirely by Zurich Insurance Group Ltd. The fees for Mr. de Swaan’s additional Board membership in Zurich Insurance plc (ZIP) and Zurich Life Assurance plc (ZLAP) and for the additional Board memberships of Mrs. Bies and Mr. Nicolaisen in Zurich Holding Company of America (ZHCA) are paid by the respective companies. Remuneration paid to the members of the GEC is not paid by Zurich Insurance Group Ltd, but by the Group entities where they are employed. The remuneration shown below includes the remuneration that the members of the Board and the GEC received for all their functions in the Group. As the financial statements of the holding company are presented in Swiss francs, all figures are shown in Swiss francs, with totals also presented in U.S. dollars. The remuneration paid to the members of the Board is designated in Swiss francs. The remuneration of the members of the GEC is paid in local currency and therefore year-on-year comparisons are affected by movements in exchange rates.
Of which allocated in shares 4, 5 in CHFDirectors’ fees 2012
4 The shares allocated to the Directors are sales-restricted for three years. 5 As of June 16, 2012, Mr. Ackermann was allocated 1,365 shares, Mr. de Swaan was allocated 550 shares, and the other Board members were allocated 386 shares based on a full year’s membership. The share price (CHF 207.10) as of June 16, 2012 was adopted to calculate the number of shares based on the fixed portion of the fee allocated in shares for the respective members. Where the value of the allocated shares did not equal the value of the portion of the fee to be allocated in shares, the difference was paid in cash.
8 In line with applicable laws, Zurich paid the company-related portion of contributions to social security systems, which amounted to CHF 160,340 in 2012. The corresponding contributions amounted to CHF 142,832 in 2011. Any personal contributions of the Directors to social security systems are included in the amounts shown in the table above. 9 At the Annual General Meeting on March 29, 2012 Mr. Gentz and Mr. Sankey retired from the Board and Ms. Carnwath and Mr. del Pino were elected to the Board.
Mr. Ackermann was appointed Chairman and Mr. de Swaan Vice-Chairman of the Board of Directors. 10 The amounts have been translated from Swiss francs to US dollars at the relevant exchange rates throughout the year. 11 As of June 30, 2011, Mr. Gentz was allocated 1,523 shares, Mr. Ackermann was allocated 571 shares, and the other Board members were allocated 365 shares based on a full year’s membership. The share price (CHF 218.90) as of June 15, 2011 was adopted to calculate the number of shares based on the fixed portion of the fee allocated in shares for the respective members. Where the value of the allocated shares did not equal the value of the portion of the fee to be allocated in shares, the difference was paid in cash.
At the Annual General Meeting on March 29, 2012, the terms of office of Mr. Gentz and of Mr. Sankey expired and they did not stand for re-election. No termination payments (i.e. “golden parachutes”) were made and no other benefits such as waiver of lock-up periods for equities, shorter vesting periods or additional contributions to occupational pension schemes were provided. Ms. Carnwath and Mr. del Pino were elected new members of the Board of Directors. No special payments (i.e. “golden handshakes”) or other benefits were provided.
No benefits (or waiver of claims) have been provided to former members of the Board during the year 2012 or during the year 2011. Neither had any former member of the Board outstanding loans, advances or credits as of December 31, 2012 or 2011.
2 On the basis of 13 GEC members, of whom 9 served during the full year 2012. 3 On the basis of 12 GEC members, of whom 9 served during the full year 2011. 4 The share grants will vest in the future according to achievement of defined performance conditions. The value of the shares assumes that the grant will vest in the future at 100 percent of the target level with the valuation of the target performance share grants based on the share price of the day prior to the grants (CHF 225.90 for 2012 and CHF 243.60 for 2011).
8 The amounts have been translated to US dollars at the relevant exchange rates throughout the year and the cash incentive to be paid in 2013 has been translated at the year-end rate in 2012.
in CHF million 1, for the year ended December 31All GEC members (incl. the highest paid)
Base salary 1.60 1.60 Cash incentive awards earned for the year 2.00 2.40 Value of target performance share grants 2 3.60 3.60 Service costs for pension benefits 3 0.30 0.20 Value of other remuneration 4 0.10 0.10 Total in CHF million 7.60 7.90 Total in USD million 5 8.30 8.60 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 CEO’s services.
As of December 31, 2012 and 2011, there were no loans, advances or credits outstanding from GEC members.
During 2012, two members of the GEC left the Group. Agreements with the departing members provided remuneration in accordance with their employment contracts. No termination payments (i.e. “golden parachutes”) were made and no other benefits such as agreements concerning special notice periods or longer term contracts (exceeding 12 months in duration), waiver of lock-up periods for equities, shorter vesting periods or additional contributions to occupational pension schemes were provided. As described in the 2010 report a member who retired at the end of 2010, after long service with the Group, was retained as a consultant in 2011 and 2012. Recognizing the prior contractual obligations, adherence to postemployment obligations and the provision of services in 2012 the member received remuneration in the amount of USD 2.4 million during 2012. No other former members of the GEC received remuneration in 2012. In addition, as of December 31, 2012 and 2011 no former member of the Group Executive Committee had any outstanding loans, advances or credits.
No benefits (or waiver of claims) have been provided to related parties of GEC members or related parties of former members of the GEC during the year 2012 or 2011. Neither had any related party of GEC members or of former members of the GEC outstanding loans, advances or credits as of December 31, 2012 or 2011.
18. Shareholdings of the Board of Directors and the Group Executive Committee Share and share option holdings of the Directors and of the members of the GEC, who held office at December 31, 2012 and 2011, are set out below in accordance with the information required by article 663c paragraph 3 of the Swiss Code of Obligations. This information is also included in the unaudited Remuneration report, set out on pages 56 to 81 of the Annual Report in which additional details can be found.
J. Ackermann, Chairman 23,271 806 M. Gentz, Chairman n / a 6,868 T. de Swaan, Vice-Chairman 2,079 1,529 S. Bies, Member 1,632 1,246 A. Carnwath, Member 292 n / a V.L.L. Chu, Member 1,632 1,246 R. del Pino, Member 292 n / a Th. Escher, Member 9,470 7,084 F. Kindle, Member 16,915 16,529 A. Meyer, Member 3,239 2,853 D. Nicolaisen, Member 1,915 1,529 V.L. Sankey, Member n / a 2,699 R. Watter, Member 4,883 4,497 1 None of the Directors together with parties related to them held more than 0.5 percent of the voting rights of Zurich Insurance Group Ltd shares as of December 31, 2012 or 2011, respectively.
Share and share option holdings of the members of the GEC 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 salesrestricted or not, and vested share options received under the Group’s Long-Term Incentive Plan. 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.
The following tables show how the totals of vested share options owned by members of the GEC as of December 31, 2012 and 2011, are distributed according to the grants identified in the tables “Summary of outstanding options.”
Appropriation of capital contribution reserve Balance at January 1, 2013 (incl. reserve for treasury shares) 10,688,412 Dividend payment out of capital contribution reserve (2,521,102) 1
The Board of Directors proposes to the Annual General Meeting on April 4, 2013, to pay out a dividend of CHF 2,521 million from the capital contribution reserve.
As statutory auditor, we have audited the accompanying financial statements of Zurich Insurance Group Ltd, which comprise the income statements, balance sheets and notes (pages 327 to 340), for the year ended December 31, 2012.
Opinion In our opinion, the financial statements for the year ended December 31, 2012, comply with Swiss law and the Company’s articles of incorporation.
We further confirm that the proposed appropriation of available earnings (page 341) complies with Swiss law and the Company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.
Our audit was conducted in accordance with Swiss Auditing Standards, which require that an audit be planned and performed to obtain reasonable assurance about whether material violations against legal and statutory requirements and deviations from the regulations as mentioned in the prospectus regarding the issuance of shares are detected. We have performed audit procedures appropriate to the circumstances and we believe that our audit provides a reasonable basis for our opinion.
In our opinion, the issuance of 914,301 registered shares with a par value of CHF 0.10 complies with Swiss law and the Company’s articles of incorporation.
In this section Registered share data 348 Financial calendar 350 Contact information 351 Glossary 352
Basic earnings per share 24.79 22.69 Diluted earnings per share 24.66 22.52 Book value per share, as of December 31 214.79 202.17 Nominal value per share 0.10 0.10 Price at end of period 243.40 212.50 Price period high 245.00 274.50 Price period low 193.10 144.90 1 Proposed dividend, subject to approval by shareholders at the Annual General Meeting 2013; expected payment date as from April 11, 2013. As the dividend payment will be paid from the capital contribution reserve, it will be exempt from Swiss withholding tax.
As of December 31, 2012 Zurich Insurance Group Ltd is not aware of any person or institution, other than BlackRock, Inc., New York, and Norges Bank, Oslo, which, directly or indirectly, had an interest as a beneficial owner in shares, option rights and/or conversion rights relating to shares of Zurich Insurance Group Ltd representing three percent or more of its issued shares. The related announcements of these notifications can be found via the search facility on the SIX Disclosure Office’s platform: com/obligations/disclosure/major_shareholders_en.html
Annual Report 2012 The Annual Report contains detailed information about Zurich’s financial performance, its structure, executive bodies, risk management, corporate governance and remuneration. It is available in German, French and English, with the complete financial statements in English only.
Media Relations Zurich Insurance Group Ltd, Switzerland Telephone: +41 (0)44 625 21 00 E-mail: media@zurich.com
Securities Custody Service Zurich Insurance Group Ltd Securities account c/o SIX SAG Ltd P.O. Box, 4601 Olten, Switzerland Telephone: +41 (0)58 399 61 45 Fax: +41 (0)58 499 61 91
American Depositary Receipts Zurich Insurance Group Ltd has an American Depositary Receipt program with The Bank of New York Mellon (BNYM). For information relating to an ADR account, please contact BNY Mellon’s Shareowner Services in the USA on +1-888-BNY-ADRS or outside the USA on +1 201 680 6825 or by email to shrrelations@bnymellon.com. General information on the company’s ADR-program can be obtained from The Bank of New York Mellon at www.adrbnymellon.com
Book value per share is a measure that is calculated by dividing common shareholders’ equity by the number of shares issued less the number of treasury shares.
Business operating profit (BOP) is a measure that is the basis on which the Group manages all its business units. It indicates the underlying performance of the Group’s business units by eliminating the impact of financial market volatility and other non-operational variables. BOP reflects adjustments for shareholders’ taxes, net capital gains on investments and impairments (except for the capital markets and property lending/banking operations included in Non-Core Businesses, investments in hedge funds, certain securities held for specific economic hedging purposes, and policyholders’ share of investment results for the life businesses), non-operational foreign exchange movements, and significant items arising from special circumstances, including restructuring charges for litigation outside the ordinary course of business and gains and losses on divestments of businesses. Business operating profit before interest, depreciation and amortization (BOPBIDA) is BOP before interest expense on debt, depreciation of property and equipment and amortization and impairment of goodwill and other intangibles, but including amortization of DAC and DOC. Adjusted business operating profit is adjusted for notional investment income on the difference between the average actual International Financial Reporting Standards (IFRS) equity and the average allocated IFRS equity using one global swap rate. Allocated IFRS equity is equal to a segment’s share of the Group’s total IFRS equity allocated based on the segment’s proportion of the Group’s total risk-based capital (RBC) at each period end.
Insurance deposits are deposits, similar to customer account balances, not recorded as revenues. However, the fees charged on insurance deposits are recorded as revenue within the gross written premiums and policy fees line item within the consolidated income statement. These deposits arise from investment contracts and insurance contracts that are accounted for under deposit accounting. They represent the pure savings part, which is invested.
Gross management result is a performance measure of Farmers Management Services calculated as management fees and other related revenues minus management and other related expenses, which include amortization and impairments of intangible assets.
Disclaimer & Cautionary Statement Certain statements in this document are forward-looking statements, including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives of Zurich Insurance Group Ltd or the Zurich Insurance Group (the Group). Forward-looking statements include statements regarding the Group’s targeted profit, return on equity targets, expenses, pricing conditions, dividend policy and underwriting and claims results, as well as statements regarding the Group’s understanding of general economic, financial and insurance market conditions and expected developments. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results and plans and objectives of Zurich Insurance Group Ltd or the Group to differ materially from those expressed or implied in the forward-looking statements (or from past results). Factors such as (i) general economic conditions and competitive factors, particularly in key markets; (ii) the risk of a global economic downturn; (iii) performance of financial markets; (iv) levels of interest rates and currency exchange rates; (v) frequency, severity and development of insured claims events; (vi) mortality and morbidity experience; (vii) policy renewal and lapse rates; and (viii) changes in laws and regulations and in the policies of regulators may have a direct bearing on the results of operations of Zurich Insurance Group Ltd and its Group and on whether the targets will be achieved. Zurich Insurance Group Ltd undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise.
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