Zurich Insurance Group (Zurich) is a leading multi-line insurer that serves its customers in global and local markets. With about 55,000 employees, it provides a wide range of property and casualty, and life insurance products and services in more than 215 countries and territories.
Zurich’s customers include individuals, small businesses, and mid-sized and large companies, as well as multinational corporations. The Group is headquartered in Zurich, Switzerland, where it was founded in 1872.
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3 Cash remittances for full year 2019. 4 Total revenues excluding net investment result on unit-linked investments. 5 Market value of the investment portfolio (economic view).
6 The Z-ECM is an internal measure of capital adequacy and reflects midpoint estimates with an error margin of +/– 5 pts.
8 Number shown as of 2018; 2019 data will be available in Q2 2020.
9 In 2019, Zurich interviewed over 1 million customers (including Zurich Santander) in 25 countries through its NPS (Net Promoter System) program.
Strong progress is being made on our strategy. And innovative ideas and insights are being produced that allow us to benefit all stakeholders.” Michel M. Liès Chairman of the Board of Directors
As Zurich’s three-year strategic cycle concludes, we can look back on 2019 as a year of achievement and validation. It has not always been easy, but our ambitious financial targets for 2017 – 2019 have all been exceeded, a dividend of CHF 20 per share has been proposed to shareholders, and trust and confidence has returned to the business.
More than this, I am very pleased with the energy that is being devoted to Zurich’s long-term success. Strong progress is being made on our strategy. Zurich is focusing on customers and simplifying its business. And innovative ideas and insights are being produced that allow us to benefit all stakeholders – including customers, employees, shareholders and communities – both now and in the future.
We take this responsibility seriously and are living up to it, because nearly everyone we come in contact with is touched by the dramatic changes taking place in society. In 2019, we made clear commitments to drive solutions on climate change, help individuals and businesses adapt to the changing world of work, and build trust in our digital future. In 2020, those commitments will be followed by concrete actions.
Decade of delivery The last decade ended with proof that Zurich’s initial efforts to become simpler and more innovative are working. And there is so much more to come.
2020 marks the beginning of a new threeyear strategic cycle for Zurich. During this time, we will focus even more on innovating to meet customer needs. Technology is raising the expectations customers have of insurers. But it also creates untold opportunities to delight them with new approaches to preventing as well as covering risk.
We began this journey at Zurich in 2016 with a set of very ambitious financial targets that few believed we could achieve, and have made tremendous progress already.
The talent, resourcefulness and passion of our 55,000 employees have led us to exceed all of our targets. We delivered aboveindustry returns to our shareholders while simplifying our business, our products and our services. Customer satisfaction has risen steadily in many markets. We are proud of these achievements.
We are introducing solutions for millennials and others seeking individual, flexible cover. And we are working with startups and others to get fresh insights. We are also attracting the next generation of employees through a variety of means, including our award-winning apprentice program.
Insurers including Zurich are preparing to adopt IFRS 17, one of the most significant changes to global financial reporting standards in recent history. Zurich is finalizing the implementation of IFRS 17 and began testing in anticipation of implementation in 2022.
As a long-term investor, our mission is to achieve superior risk-adjusted returns relative to our liabilities. With elevated volatility and interest rates close to historic lows, we have delivered strong investment returns to our policyholders and shareholders. We remain disciplined in managing our well diversified and high quality investment portfolio.
Growing in retail In retail, we will focus on enriching our offering with innovative and more flexible products and services, such as our recently launched Zurich klinc on-demand gadget insurance in Spain, and ToggleSM, a customizable insurance with innovative services for renters, introduced by Farmers in the U.S. We aim to deepen our relationship with existing customers and build out new customer segments, from the millennial and Gen-Z age groups to small- and medium-sized enterprises. Using the insights gained by listening to our customers, we aim to become their preferred insurance provider.
Attracting diverse talent Our future depends on having the right and best talent. We have received worldwide recognition for our efforts to be a diverse employer, including in our recent commitment to grant equal access to paid maternity and paternity leave globally. We also aim to be a fair employer to all our employees to ensure each of them receives opportunities to develop skills and expertise.
Many of the employee initiatives we have launched since 2016 originated from our employees, testimony to our changing culture.
Net savings USD 1.5 bn by 2019 compared with 2015 baseline
USD 1.6 bn 1 Business operating profit after tax return on equity, excluding unrealized gains and losses. 2 Full year 2019 Z-ECM reflects midpoint estimate with an error margin of +/– 5 percentage points.
Our employees have encouraged us to become a simpler, more sustainable business.”
That is why in 2019 we made three public commitments that will shape our impact for generations to come. First, we believe that global efforts to tackle climate change are moving too slowly and therefore signed the UN Business Ambition for 1.5˚C Pledge. This commits us to develop science-based targets across everything we do and to help customers reduce their dependency on fossil fuels.
Responsible and impactful Our performance over the past few years puts us in an excellent position to pursue our customer-focused strategy with energy and deliver on our ambitious new targets for the next three years. At same time, we know that the changes in insurance and the needs of future generations mean that our journey is a long-term one.
We see opportunities to grow the business. We know which type of growth we want to achieve. We will remain cost-driven and continue to simplify the organization. We aim to improve portfolio quality and make better use of capital. To sharpen our focus on customers, we are also adding two new KPIs.
We continue to focus on customers, while simplifying our business and driving innovation.
Our strengths provide a good basis for our success. A solid financial position We are rated AA–/positive by Standard & Poor’s. Our solid financial position can reassure our customers that we will be there when they need us to handle their claims and our shareholders that we are financially stable. It also gives us a well-earned positive reputation as a business and employer, and positions us to invest in future growth.
Our business is balanced geographically, and by products and customer segments. Our strong retail and commercial franchise and flexible operating model position us well to weather economic and market volatility, and to take advantage of industry change.
We implement our strategy by remaining true to our purpose and values.
We continue to deepen our relationship with existing customers and intensify innovation efforts to attract younger customer segments: including millennials and Generation Z.
We are adapting to make sure we continue to meet and exceed customers’ expectations and needs.
We further developed Zurich Customer Active Management, a unit which allows us to better understand customer needs, giving us insights into what customers really need and want.
We have many stories to tell about our business. Each of these reflect how we are bringing our strategy to life in different ways for the benefit of our customers.
If you are a UK cyclist planning a trip with your favorite set of wheels, see the story about Laka on page 11
To learn more about how all Zurich’s risk experts are helping our business customers, see page 12
To learn how younger employees are already making a difference across our business, see the future success story on page 16
It’s a big world. To see it in the best way, make sure you travel with adequate protection.
Rewarding healthy lifestyles What if you could get encouragement for doing what’s good for you? Zurich introduced such an approach in Australia in 2019. Zurich LiveWell is a health and wellness online platform that rewards customers who choose a healthy lifestyle. Besides offering articles, recipes, medical dictionaries and other features, it allows customers to upload information from a wearable fitness device that tracks steps and physical activity. Customers who use it can get a discount on the cost of their life insurance and receive offers from selected third-party providers. Since launch in May 2019, some 30 percent of new life customers in Australia have opted for the Zurich LiveWell program.
Working with a startup on innovative cycle insurance Zurich works with London-based start-up Laka, a broker which offers a unique approach to insurance. Laka provides cover for higher-value bikes in the UK with a digital insurance model allowing customers to pay a variable monthly premium based on their share of the overall cost of claims. As passionate experts in cycling, it aims to offer competitive and transparent pricing and since launching in 2018, has written over 3,000 policies. Its offerings include cover for bicycles while traveling and for amateur racing. Laka continues to grow, has received excellent customer feedback and won a UK industry start-up award in 2019.
Spotting risks where others might not see them Zurich’s customers include large global corporations that work together with our Risk Engineering team to promote understanding of photovoltaic systems. Such research takes into account extensive risk analysis, customer insights and real experience at facilities around the world. Solar energy is an attractive, sustainable technology. But without guidelines, installing such systems on rooftops, for example, may put these beyond the reach of automatic fire detection and protection systems. We are glad to refine and share our insights and make them available, including to all our customers and brokers. Working closely with customers, Zurich published a white paper on this evolving technology. We also collaborate with customers through the global NFPA Fire Protection Research Foundation. White papers, working through the NFPA, and on-site work are just some examples of how we share our insights. Below, Marc Leblanc, Global Account Risk Engineer, assessing solar panels at a commercial site.
Protecting employees Zurich is the fourth-largest worker’s compensation insurance provider in the U.S. Through our innovative predictive model, Vital Signs, we can help reduce the risk that employees may get addicted to opioid painkillers. Beyond potentially saving lives and contributing to people’s wellbeing, the program has enabled employers to lower costs associated with prescription drugs. After Zurich North America introduced its Opioid Case Management program for companies in 2011, its data analytics team helped to develop the Vital Signs model, making it easier to spot potentially at-risk employees. Since its introduction, Zurich’s opioid program has delivered an average reduction of opioid utilization by 50 percent. The program also helped Zurich to win the Managed Care Provider Team of the Year award at the 2019 Business Insurance U.S. Insurance Awards.
To learn more about ways businesses can manage the impacts of climate risk, see our Zurich Climate Change Whitepaper: www.zurich.com/en/knowledge/topics/globalrisks /managing-impacts-climate-change-riskmanagement -responses-second-edition
Growing in attractive markets We seek to grow organically and through select, targeted acquisitions where we see potential. And we expand our reach through agreements with other companies, including banks and retail providers, giving us access to millions of potential customers.
In 2019 we completed acquisition of a majority of Adira Insurance, a leading insurer in Indonesia, to make Zurich the largest foreign property and casualty insurer in a key market in Asia Pacific. The agreement includes long-term cooperation agreements with PT Bank Danamon Indonesia, and Adira Finance, one of Indonesia’s largest providers of motorcycle and auto financing.
Bright solutions for tomorrow ‘Hackathons’ bring together programmers, software developers and others to work intensely on tight deadlines, often over a single weekend, to compete in solving specific problems. One such event is HackZurich, among Europe’s largest hackathons. In September 2019, 589 contestants with an average age of 24.7 years gathered in the city of Zurich to compete by finding innovative technology solutions in just 40 hours. Zurich, together with Zurich city, sponsored a challenge to find solutions to enable climate-neutral mobility. These events give us an opportunity to support innovation and entrepreneurship. Another such event took place in Chile, where Chilena Consolidada – Zurich Chile sponsored the NASA International Space Apps Challenge 2019 in that country.
Actively seeking startups with a business mindset Through a global contest, the Zurich Innovation Championship, we invite startups to compete for a chance to develop with us the best commercially viable ideas. Launched in 2018, the first Championship produced four winners, including gold winner Chisel AI, whose artificial intelligence product can read commercial insurance documents 400 times faster than a human − and with greater accuracy. The second Championship launched in 2019 will conclude in 2020.
We create value for our employees by aiming to give each the opportunity to work to their full potential.
We create value for our investors by paying an attractive and sustainable dividend and maintaining a strong balance sheet.
Manage reserves Our Group-wide policy, the ‘Zurich Way of Reserving,’ with well-defined and prudent standards, is the basis for how we calculate insurance liabilities. Our reserving process is supported by strong governance, including extensive internal and external reviews.
As an insurer we realize we have responsibilities to customers, society and others who rely on us. As part of that, in 2019, Zurich and the Smith School at the University of Oxford surveyed 18,000 working-aged individuals in 16 countries around the world as part of a project to help governments, insurers and employers empower lifelong, tailored solutions to better protect individuals and address various transition points in their working lives.
We hired a Chief Customer Officer and defined a new strategy to drive Zurich’s ‘customer transformation.’
We continued to listen to our customers through the Net Promoter System (NPS), extending the program to new markets while preparing to step up our efforts to ensure we remain relevant to all customers, including younger ones.
Our Commercial Insurance business is continually looking for new ways to use technology to support our customers with innovative solutions that go well beyond traditional insurance coverage.
>USD 24 bn In 2019, our Property & Casualty and Life businesses paid out more than USD 24 billion to our customers or on their behalf.
Customers are recognizing our efforts to be more responsive and take their needs into account, as reflected in the NPS score improvement. We have a solid, global customer feedback platform in place and an established process to improve how customers experience us. We are now planning to step up our efforts, so as to play a broader role in customers’ lives and truly innovate our service and product experiences.” Conny Kalcher Chief Customer Officer
New Customer Office To support the next phase of our customer- led approach, in 2019 we created a Customer Office, and appointed Conny Kalcher to the position of Chief Customer Officer. Her broad experience in customer-led transformation is focused on ensuring an excellent ‘customer experience.’ Using customer insights and data analytics, we can also ensure that our operating model actively supports our ambitions.
We are also, together with customers, developing a new ‘customer value proposition’ in our main markets to remain relevant to existing customers and to build our customer base among younger ones, especially millennials and ‘Gen Z’. To measure our progress, we are introducing two new customer metrics: ‘brand consideration’ and ‘net new customers,’ covering both customer retention and acquisitions.
Putting a risk advisor at your fingertips Alongside our traditional insurance propositions for businesses we provide solutions to help commercial customers identify and mitigate risks. One such solution is our award-winning Zurich Risk Advisor, a digital platform that helps our customers to better understand and manage their risks. The tool guides our customers through simple questions to help them to generate risk improvement ideas, do a risk selfassessment, and collaborate with our risk engineers anywhere in the world via video chats.
Gaining expertise, growing our business in attractive markets We aim to be the world’s first truly customer-led insurer. We are excited to see how our industry is changing. A lot of this is driven by technology, which offers new opportunities and is transforming how customers live and work, and the services and experiences they expect. We are enthusiastically meeting these challenges, including by working with young and established companies specializing in areas ranging from artificial intelligence to wellness apps, to provide new and personalized solutions.
We also launched a new digital platform for agents and brokers to provide them with analytics and data insights, enabling them to personalize advice and customer offerings.
Committing to a responsible approach to customer data Zurich wants to be a responsible business that makes a positive impact, both on our customers’ lives and on society. To do this, in September 2019 we published our global data commitment, in which we pledge to protect customers’ personal data. We will not sell it, nor share it, without being fully transparent. We will also put customers’ data to work to better protect them.
New initiatives are helping us to make sure our leaders and employees have the right skills for the future.
We remain proud of our innovative work-based learning to prepare young people across our business for a career in insurance.
Creating a catalyst for our leaders Zurich wants to do even more to retain and develop talented people. To achieve this, we are delivering a series of programs that will strengthen the capability of our management and leadership. These include innovative initiatives like the ‘Catalyst’ program designed to foster outstanding leadership skills.
Bringing learning to life through apprenticeship programs We are expanding apprenticeships and opportunities for work-based learning across our business. For example, in 2016 we introduced an apprenticeship program in the U.S. allowing participants to attend college courses while getting on-the-job work experience. Run in conjunction with Harper College near our North America headquarters in Schaumburg, Illinois, in 2018 the program won an innovation award.
Listening and acting on suggestions through ENPS We want Zurich to be a great place to work and we recognize the value of feedback and ideas from our employees. We actively listen to employees to measure engagement and loyalty through both the Employee Net Promoter Score (ENPS) and Organizational Health Index (OHI), which tell us what matters most to our people give us ideas of where we need to take action. Our leaders are accountable for creating the right environment so employees can get involved to make Zurich a great place to work. Since April 2017 our ENPS score has increased across the Group from – 23 to + 30 in October 2019.
Group overview Governance Risk review Financial review 1 Turnover figures only consider regular and inpatriate employees. 2 Technical functions include claims, underwriting and risk engineering. 3 Group-wide feedback channels include organization health surveys, employee net promoter scores (ENPS) and any other
Promoting a culture based on merit A diverse culture drives innovation, motivates people, attracts talent, and is key to our success as a company. We need to give everyone an equal chance to perform at their best, be recognized for their contributions, and have opportunities to grow. To underscore our commitment, in 2019 Group CEO Mario Greco signed the UN Women’s Empowerment Principles, which include establishing high-level corporate leadership for gender equality, measuring it, and reporting on progress. And through our equal pay regression analysis, using statistical analysis we can track whether men and women are paid ‘equitably’ for the same or similar roles and if gender could be a factor affecting pay.
A new way of working and learning in the U.S. In 2016, Zurich introduced its apprentice program in the U.S. That same year Noelia Salgado began the program. It allowed her to finish her education while working. She completed the program in November 2017 and today works for Zurich as an underwriting support specialist. As she says, “I don’t know of any other place where you can learn so much, meet so many different people and work in so many different departments.”
Zurich is a leading global insurer, serving individuals, small businesses, and midsized and large companies, as well as multinational corporations. Zurich has significant market share in North America and Europe, a leading position in Latin America and a growing presence in Asia Pacific. With about 55,000 employees, it provides a wide range of property and casualty, and life insurance products and services in more than 215 countries and territories. It also provides certain non-claims and ancillary services to the Farmers Exchanges,1 a leading personal lines insurer in the U.S.
The Group is committed to a dividend payout of around 75 percent of net earnings, subject to a floor of the prior year dividend level, with dividend increases subject to sustainable earnings growth.
Corporate governance and sustainability The balanced business profile of Zurich is also supported by best practice corporate governance. Its Board is independent and remarkably diverse in terms of gender and skills. Its remuneration principles align pay to performance and are an important element of the Group’s risk management framework.
Market capitalization (CHF millions) 59,409 44,360 1 Proposed dividend, subject to approval by shareholders at the Annual General Meeting, expected payment date as from April 7, 2020. Gross dividend, subject to 35 percent Swiss withholding tax.
Provision of financial information Zurich’s annual financial results are published in electronic form on Zurich’s website. Detailed information for the Group and the key segments are published for the half and full year. Information on the Group’s updates for the first three months and first nine months includes highlights for the quarter and qualitative comments on trading and market trends. Zurich’s management hosts an investors’ and analysts’ call each quarter.
Our impact investments in 2019 rose to USD 4.6 billion, and demonstrating our commitment to addressing climate risk, we improved our Carbon Disclosure Project (CDP) score.
2019 marked an evolution in our approach to be a leader in sustainability. Through our actions, together with the Z Zurich Foundation, we are working to address the risks that will affect all of us in the future – unless we act today.
According to the latest data available, in 20181 we achieved a 20 percent reduction in CO2-equivalent emissions per employee compared with the 2015 baseline.1 This success is attributed to our continued focus on high quality, environmentally efficient workplaces, and maintaining our focus on responsible business travel. In 2019, Zurich joined the RE100 leadership initiative, committing to source 100 percent of electricity from renewable sources by end- 2022. We have also been working diligently to eliminate single-use plastics from our operations and reduce internal paper usage by 80 percent. New emissions reductions targets will be set for our operations in 2020, in line with our 1.5°C Pledge.
To learn more see: Marking our progress Impact investments can help promote sustainable growth and support communities while offering a financial return in line with risks. Zurich is committed to investing up to USD 5 billion in impact investments, thus aiming to improve the lives and livelihoods of five million people.
2 Number of people who have benefited from services in education, health, housing or financial inclusion and other measures aimed at improving lives, improvements that are directly related to Zurich’s investments.
The Z Zurich Foundation: separate paths, one goal 1 Z Zurich Foundation is a charitable foundation established by Zurich Insurance Company Ltd and Zurich Life Insurance Company Ltd, in accordance with Swiss law, with registered office in Zurich. Z Zurich Foundation also collaborates with other local community investment programs; in the UK together with the Zurich Community Trust and in Germany with the Zurich Kinder- und Jugendstiftung.
A few of the many ways that the Z Zurich Foundation is making a difference: Helping communities affected by Australia’s wildfires The Foundation is providing support to people affected by Australian bushfires that devastated parts of the continent in 2019 and 2020. In addition to the initial donation of AUD 100,000 split between the Australian Red Cross and the Rural Fire Service, the Foundation will contribute a further 50 percent on top of the first AUD 1 million donated to the Red Cross on a dedicated donation site. The funding will be used to provide immediate relief and to help communities in Australia to become more disasterresilient, as well as to provide training, equipment and support for volunteers.
Fighting homelessness in Canada In Canada, the Z Zurich Foundation worked with a group of charities that formed the RESOLVE Campaign to raise money to provide affordable housing for the homeless in Calgary. The Z Zurich Foundation committed CAD 1 million to one of the charities involved in the program to help pay off the mortgages on nearly 300 new, purpose-built housing units, while Zurich Canada employees volunteered to help individuals to develop life and job skills.
Zurich employees contributing time and skills to improve lives and support those in need Hours 31,807142,200
Zurich sees innovation and sustainability as key to our approach. We need both, working together to achieve our goals for all stakeholders: customers, employees, investors and communities.
The next generation is looking to the future with uncertainty. The world has become less predictable. By being an innovative company, we want to give people faith in a more sustainable future.” Giovanni Giuliani Group Head of Strategy, Innovation and Business Development
We care about society and we need to find new ways to manage the global risks that we’re facing. That requires innovative thinking that goes beyond simply looking for short-term solutions.” Linda Freiner Group Head of Sustainability
4 ENPS is calculated as the average of the two surveys carried out during the year, measuring employee loyalty through the likelihood to recommend the company as a place to work. ENPS is based on the methodology of measuring and improving customer satisfaction and loyalty (transaction NPS and relationship NPS) which Zurich uses as a successful method to retain customers.
Workforce actively volunteering (% of total headcount) 2 20.3% n/a n/a
Total full year charitable cash contributions by Zurich business units (USD millions) 1,3
Total full year charitable cash contributions by Zurich to Z Zurich Foundation (USD millions) 4 40 – n/a
Notes: Zurich Insurance Group and its employees are contributing through fundraising, volunteering and cash contributions apart from the community investment activities carried out by the Z Zurich Foundation. 1 Excluded are corporate donations made by the Farmers Exchanges. Zurich Insurance Group has no ownership interest in the Farmers Exchanges. Farmers Group, Inc., a wholly owned subsidiary of the Group, provides certain non-claims services and ancillary services to the Farmers Exchanges as attorney-in-fact and receives fees for its services.
Total amount of impact investments (USD millions) 3 4,555 3,790 20%
1 Scope includes real estate investments in Switzerland (40 percent of global direct real estate investment value). Buildings in the real estate investment portfolio are largely not used by Zurich. The data are based on meter readings and energy supplier information and are heating degree adjusted.
Total tax contributions 1 2018 2 2018 total tax contributions by region in USD millions
AR ifc, 11 to 15 and 18 to 21; SR 12 to 15 102-3 Location of headquarters AR ifc 102-4 Location of operations 102-5 Ownership and legal form AR 188 and 299 102-6 Markets served 102-7 Scale of the organization AR ifc 102-8 Information on employees and other workers 102-9 Supply chain SR 37; CDP
102-14 Statement from senior decision-maker AR 2 to 7, 38 to 39, 90 to 91, 126 to 127, 164 to 165 and 176 to 177; SR 5 102-15 Key impacts, risks, and opportunities AR 10 to 17 and 126 to 127; CDP; SR 7 to 9 and 14 to 15 102-16 Values, principles, standards, and norms of behavior AR 4 to 8; SR 10 102-17 Mechanisms for advice and concerns about ethics
102-20 Executive-level responsibility for economic, environmental, and social topics AR 58; SR 10 102-21 Consulting stakeholders on economic, environmental, and social topics
SR 7 to 8 102-22 Composition of the highest governance body and its committees
AR 46 to 63 102-23 Chair of the highest governance body AR 2 to 3, 38 to 39 and 48; SR 10 102-24 Nominating and selecting the highest governance body
Number Disclosure name Reference and page number 102-28 Evaluating the highest governance body’s performance
AR 56 to 58 102-29 Identifying and managing economic, environmental, and social impacts AR 57 to 58 102-30 Effectiveness of risk management processes
AR 155 102-31 Review of economic, environmental, and social topics AR 38 to 39 102-32 Highest governance body’s role in sustainability reporting AR 57; CDP
102-41 Collective bargaining agreements 102-42 Identifying and selecting stakeholders SR 7 102-43 Approach to stakeholder engagement AR 18 to 19; SR 7 102-44 Key topics and concerns raised SR 7 to 8 102-45 Entities included in the consolidated financial statements
AR 283 to 287 102-46 Defining report content and topic boundaries
AR 188 to 193 and 299 102-47 List of material topics SR 7 to 8 102-49 Changes in reporting AR 190 to 193 102-50 Reporting period AR 188 to 189 and 299 102-51 Date of most recent report SR 1; CDP
102-53 Contact point for questions regarding the report AR 313 102-55 GRI content index AR 32 to 33; SR 42 to 43 102-56 External assurance AR 34 to 35, 75 to 76, 122, 290 to 295 and 306 to 309; SR 40 to 41
GRI is an international independent organization that helps businesses, governments and other organizations understand and communicate the impact of business on critical sustainability issues such as climate change, human rights, corruption and many others. We have used references to the Global Reporting Initiative (GRI) as an index below to help our stakeholders find the information relevant to them throughout the Annual Report and on our Group website without adhering to the standards listed in the index in its entirety. This index lists the organization’s reports and web pages and their reference to the following GRI Standards.
AR 179 to 187 201-2 Financial implications and other risks and opportunities due to climate change
Indirect Economic Impacts 203-1 Infrastructure investments and services supported SR 17 to 18 and 27 to 30; CDP
SR 24 403-6 Promotion of worker health SR 24 to 25
Training and Education 404-1 Average hours of training per year per employee
Diversity and Equal Opportunity 405-1 Diversity of governance bodies and employees
Summary of work performed Our limited assurance procedures included, but were not limited to the following work: – Reviewing the application of ZIG’s internal guidelines using a sample of affiliates in Switzerland, UK, USA, Germany, Spain, Ireland, Isle of Man and Hong Kong
– Interviewing ZIG representatives at Group level responsible for the data collection and reporting
We have not carried out any work on data other than outlined in the scope and subject matter section as defined above. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our assurance conclusions.
Sustainability is becoming increasingly important Over the past twelve months, creating sustainable value for all stakeholders on environmental, social and governance (ESG) issues has become an even greater imperative for businesses. For example, the effects of climate change are increasingly becoming felt in the here and now, while young people are making their voices heard like never before.
On social issues, we are helping workers protect incomes and fund longer retirements, as well as building employability and digital skills among our employees and communities. We are committed to Work Sustainability and promote a work culture in which everyone – employer and employee, each playing their part – can pursue their ambitions, with the aim to that we are all better prepared for the future, together. And with regard to our third pillar of our sustainability strategy, building trust in a digital era, we recently released our global Data Commitment – a binding pledge to use our customers’ data responsibly and securely.
Changes to our Board and Executive Committee At the Annual General Meeting (AGM) on April 3, 2019, Michael Halbherr, Jasmin Staiblin and Barry Stowe were elected to join the Board of Directors as new members. David Nish did not stand for re-election. The Board proposes to shareholders that they re-elect all current members of the Board at the AGM on April 1, 2020.
These appointments continue to enhance diverse thinking within our Board and Executive team, as a result of different tenures, a more balanced gender mix, different professional backgrounds, geographic origins or other factors. Such diversity represents the global nature of our business and our customer and employee base. It enables us to see the full picture, promotes innovation, boosts productivity and ultimately delivers better results.
Zurich stakeholders Acting sustainably matters to all our stakeholders, and Zurich’s strategy will enable us to deliver a positive impact for all of them. Thank you for your continued trust, support and engagement.
Michel M. Liès Chairman of the Board of Directors 2008/9 Longer term commitment to the Z Zurich Foundation
2014/15 Proof-point examples: USD 2bn green bond commitment 10% PE impact investing allocation
Sustainability risk framework in underwriting 2017 Approval of a new sustainability ambition for Zurich
Peter Giger, Group Chief Risk Officer (Group CRO) (as of October 1, 2019)
Barry Stowe, elected as member of the Board (as of April 3, 2019)
David Nish, retired from the Board (as of April 3, 2019)
An effective structure is in place providing for cooperation between the Board of Directors of Zurich Insurance Group Ltd, management and internal control functions. This structure establishes checks and balances and is designed to provide for institutional independence of the Board from the Group Chief Executive Officer (Group CEO) and the Executive Committee (ExCo) which together are responsible for managing the Group on a day-to-day basis. The Board is composed entirely of non-executive members, independent from the management.
Remuneration architecture Board Remuneration Committee Board Risk & Investment Committee 2
On an annual basis, the Remuneration Committee evaluates Zurich’s Remuneration Rules and the remuneration architecture, including the incentive plans which are discretionary and can be terminated, modified, changed or revised at any time. The Remuneration Committee proposes any amendments to the Board as required.
At Remuneration Committee and Board meetings where decisions are made on the individual remuneration of either the Chairman, the Group CEO or other members of the ExCo, those individuals are not present. See page 59 for further details on the Remuneration Committee’s responsibilities.
The remuneration approval framework is set out as follows: 1 The remuneration policy of the Company which serves as a framework for the governance, design, implementation and monitoring of the Group’s remuneration architecture; is designed to support the Group’s business strategy, risk management framework and operational and financial plans, and takes into account legal and regulatory requirements.
2 On recommendation of Group CEO. 3 Remuneration report addresses remuneration architecture, rules and disclosures. 4 The Group CEO remuneration is approved in aggregate with the ExCo remuneration. 5 Based on proposals by the Group CEO taking into account a risk assessment by Group Risk Management.
The following chart shows the operational Group structure on December 31, 2019.
The Group’s operating structure reflects the businesses operated by the Group and how these are strategically managed to offer different products and services to specific customer groups. The Group’s reportable segments for 2019 comprised: 33 Regions (EMEA, North America, LatAm and APAC): segments through which the Group provides a variety of property and casualty and life products to retail and commercial customers as well as reinsurance propositions. Commercial Insurance brings together corporate and commercial insurance expertise worldwide under a single umbrella.
33 Farmers provides, through Farmers Group, Inc. (FGI) and its subsidiaries, certain non-claims services and ancillary services to the Farmers Exchanges as attorney-in-fact. FGI receives fee income for providing services to the Farmers Exchanges, which are owned by their policyholders and managed by Farmers Group, Inc. a wholly owned subsidiary of the Group. Farmers also includes all reinsurance assumed from the Farmers Exchanges by the Group. Farmers Exchanges are prominent writers of personal and small commercial lines of business in the U.S.
33 Group Functions and Operations comprise the Group’s Holding and financing and headquarters activities. Certain alternative investment positions not allocated to business operating segments are included within Holding and Financing. In addition, Group Functions and Operations includes operational technical governance activities relating to technology, underwriting, claims, actuarial and pricing.
Our governance structure and independent and diverse Board composition ensure effective corporate governance and strategic oversight, and foster ESG integration in the business, enabling Zurich to create sustainable value for our shareholders, customers, employees and other stakeholders.
Committee membership: Audit Committee (Chairman), Governance, Nominations and Sustainability Committee, Risk and Investment Committee
Kishore Mahbubani Jasmin Staiblin Barry Stowe * Chairman of Board or Board Committee, respectively.
Board Composition Diversity is a key factor for success in today’s fast-changing global environment. Zurich’s Board consists of individuals with different geographic and cultural backgrounds and experience, which mirror our international footprint, bringing local cultural perspective as well as regional networks, and a diverse set of knowledge and skills that we have broadened through the election of three new Board members at the AGM this year. Zurich’s Board is one of the most gender diverse in Switzerland with 45% women. The Board can draw on this diverse group of individuals to carry out its responsibilities and tasks, while taking into account a full range of current business needs.
Diversity of the Board as focus for the future Optimal Board composition is, in Zurich’s view, the key success factor for the performance of the board. A strong board succession pipeline is at the heart of the Chairman’s ongoing duties. His focus lies on achieving the best possible diversity in terms of thinking among Board members. Optimal future Board composition shall be achieved by maintaining a well-balanced profile portfolio, also considering non-technical skills, matching the group’s strategy and possible challenges ahead. They may arise in areas such as rapidly changing customer behavior, technology, macroeconomics, the legal and regulatory environment, etc.
External appointments Mr. Franz was elected chairman of the board of Roche Holding Ltd in March 2014. He is also a member of the board of directors of Chugai Pharmaceuticals Ltd. (controlled by Roche Holding Ltd), and of Stadler Rail Ltd. Mr. Franz serves as a member of the board of trustees of Ernst-Goehner-Foundation, of Avenir Suisse, of the Swiss Study Foundation and of the Lucerne Festival and is a member of the advisory board of the University of St. Gallen (HSG). He was named as an honorary professor of business administration at the University of St. Gallen in May 2017. In September 2017, the International Committee of the Red Cross (ICRC) appointed Mr. Franz as a member of its Assembly, the organization’s top governing body, and in May 2018 he was elected to the Assembly Council.
External appointments Ms. Amble is a member of the board of Sirius XM Satellite Radio, where she chairs the audit committee. In addition, she is a member of the board and the audit committee at Booz Allen Hamilton. In January 2015, Ms. Amble was appointed to the Public Company Accounting Oversight Board’s Standing Advisory Group, which advises on the development of auditing and professional practice standards. Since October 2016, Ms. Amble has been an independent adviser to the Control and Risk Committee of the Executive Committee of the U.S. affiliate of Société Générale S.A., a French multinational banking and financial services company. She is also involved in developing women in business, including as chair emeritus and co-founder of W.O.M.E.N in America, LLC and through her various speaking engagements. Ms. Amble also participates in director and other forums and speaks on corporate governance and corporate culture.
Skills and experience Dame Alison Carnwath has substantial financial industry experience. She began her career with Peat Marwick Mitchell, now KPMG, where she practiced as a chartered accountant from 1975 to 1980. From 1980 to 1982, she worked as a corporate financier for Lloyds Bank International. From 1982 to 1993, she was assistant director, then director, at J. Henry Schroder Wagg & Co in London and New York. From 1993 to 1997, Dame Alison was a senior partner at the financial advisory firm Phoenix Partnership. The firm was taken over by Donaldson, Lufkin & Jenrette (DLJ) in late 1997; she continued working for DLJ until 2000. Dame Alison has held several board offices. From 2000 to 2005, she was the chairman of the board of Vitec Group plc, from 2001 to 2006 a director of Welsh Water, from 2004 to 2007 of Friends Provident plc, from 2004 to 2007 of Gallaher Group and from 2007 to 2010, she was the independent chairman of MF Global Inc. She also served on the boards of directors of Barclays from 2010 to 2012, and of Man Group plc from 2001 to 2013. From 2008 to July 2018 she was chairman of the board of Land Securities Group plc. She has been a member of the boards of Zurich Insurance Group Ltd and of Zurich Insurance Company Ltd since March 2012.
External appointments Dame Alison has been a senior advisor of Evercore Partners since 2011. She has been a member of the board of PACCAR Inc. since 2005 and since September 2013 a member of the advisory council of the St. George’s Society of New York. Since May 2014 she has been a member of the supervisory board of BASF SE and Chairman of the Audit Committee of BASF SE. In May 2018 she was appointed as independent nonexecutive director and member of the Audit Committee of BP plc.
Educational background Dame Alison graduated in economics and German from the University of Reading. She was awarded honorary doctorates (LLB) from the University of Reading and the University of Exeter.
Skills and experience Mr. Hayman began his career as a claims representative in the property and casualty department of Travelers Companies in the U.S. in 1983, where he later held several positions. In 1998 he joined AIG as regional vice president, personal lines at AIU Far East in Japan. Beginning in 2003, he held various leadership positions within AIG, including as chairman of AIU Insurance Company in Japan and president and CEO of AIU Far East Holdings, Japan and Korea. From 2009 to 2011, Mr. Hayman served as senior vice president and chief administrative officer, and from 2011 to 2013 as executive vice president and CEO, Global Consumer Insurance, at AIG. In 2013 he served as president of international insurance operations at Starr Companies. He then became an independent consultant and advisor. He has been a member of the boards of Zurich Insurance Group Ltd and of Zurich Insurance Company Ltd since March 2016.
Committee membership Risk and Investment Committee (Chairman), Governance, Nominations and Sustainability Committee, Audit Committee
External appointments Ms. Mächler has been a member of the board of directors of Cembra Money Bank AG since April 2015. She also chairs the advisory board of the International Center for Insurance Regulation at the Goethe University Frankfurt am Main and serves on the boards of the Stiftung für schweizerische Rechtspflege and of the Europa Institut at the University of Zurich.
Educational background Mr. Mahbubani graduated with a first-class honors degree in philosophy from the University of Singapore and an M.A. in philosophy from Dalhousie University, Canada, where he was also awarded an honorary doctorate.
External appointments Ms. Staiblin is a board member of Rolls-Royce plc, London; NXP Semiconductors N.V., the Netherlands; Georg Fischer Ltd., Schaffhausen; and Seves Group S.à.r.l., Luxembourg.
External mandates In line with the Ordinance AEC, art. 33 of Zurich’s Articles of Association (www.zurich.com/en/about-us/corporategovernance /corporate-documents), has rules on the number of mandates members of the Board and of the ExCo are permitted to hold, as shown in the table below.
Art. 33, para. 1, of the Articles of Association sets forth the following, generally applicable, maximum limits: Board of
Exempted from this general limit are the following categories of mandates (art. 33, para. 2, of the Articles of Association): Board of
Size of Board and tenure The Articles of Association require in art. 21 that the Board shall consist of not less than seven and not more than thirteen members. According to the Group’s Organizational Rules (art. 4.4), in general, the maximum tenure of Board members may not exceed 12 years, although exceptions may be made under special circumstances (
Elections As required by Swiss law, directors and the members of the Remuneration Committee are elected annually. Directors are elected by an absolute majority of the votes represented (art. 17 and 21 of the Articles of Association).
The Board proposes to shareholders that they re-elect all current members of the Board at the AGM on April 1, 2020.
Joan Amble 11/11 – – 8/8 – Catherine Bessant 11/11 – 7/7 4 – 8/8 Dame Alison Carnwath 10/11 7/7 – 8/8 8/8 Christoph Franz 10/11 7/7 7/7 – – Michael Halbherr 3 9/10 – – 6/7 4 – Jeffrey Hayman 11/11 7/7 – 8/8 7/7 Michel M. Liès 11/11 7/7 7/7 – – Monica Mächler 10/11 6/7 – – 6/8 Kishore Mahbubani 10/11 – 7/7 6/8 –
Jasmin Staiblin 3 9/10 – 6/6 4 – – Barry Stowe 3 9/10 – – – 7/7 4 1 Until April 3, 2019, the Board had 9, the Governance, Nominations & Sustainability Committee 5, the Audit Committee 4, the Remuneration Committee 4 and the Risk & Investment Committee 5 members. 2 Retired at AGM April 3, 2019. 3 Elected at AGM April 3, 2019.
33 Finance: The Board approves the financial and operating plan annually, establishes guidelines for capital allocation and financial planning. Further, the Board reviews and approves the Annual Report and the half year financial reporting of the Group, as well as the Group’s updates for the first three months and first nine months of the year. Above certain thresholds, the Board approves major lending and borrowing transactions.
33 Sustainability: The Board approves targets on ESG matters upon the recommendation of the Group CEO which have a material impact on business strategy, underwriting or business performance. The Board also sets the Group’s values and standards to ensure that the expectations of Shareholders and other Stakeholders are met.
33 Risk management: The Board approves the Group’s key risk management principles and procedures including, in particular, the Group’s risk appetite and risk tolerance.
Additional information on the Board’s responsibilities can be found in the articles 5.3 and 5.4 of the Organizational Rules of Zurich Insurance Group Ltd (
Activities 2019: In 2019, the Board specifically focused on the following: 33 succession of Board members and onboarding of new members 33 ExCo succession 33 strategy implementation and preparation of new strategic cycle and Group targets, including building sustainable and customer-centric business model 33 risk management and internal control framework, enabling integrated view of risks and assurance customer trends, structural industry changes and new technologies 33 merger and acquisition transactions 33 Board external assessment and resulting recommendations.
The Board may establish committees for specific topics, terms of reference and rules with respect to delegated tasks, responsibilities and reporting to the Board. Except for the Remuneration Committee, the Board constitutes such committees from among its members at its own discretion. The members of the Remuneration Committee are elected at the shareholders’ meeting. The committees assist the Board in performing its duties. They discuss and propose matters to the Board in order that it may take appropriate actions and pass resolutions unless they are authorized to take resolutions in specific areas on their own. In 2019, committee meetings lasted over an hour and a half on average.
External assessment At least annually, the Board reviews, on the basis of an assessment conducted by the Governance, Nominations and Sustainability Committee of the Board (which includes an appraisal by an external expert at least every three years), its own performance, as well as the performance of each of the Committees. Such a re-view seeks to determine whether the Board and the Committees function effectively and efficiently and whether any changes should be made to the membership of the Board and the Committees. The annual board-self assessment includes, in particular, the review of the profile of the Board members and the assessment of their availability to devote time to their mandate with the Board and its Committees (also with a view to the type and number of mandates carried out with other companies) (see Nomination Principles in article 15 ff. of the Annex to the Organizational Rules under about-us/corporate-governance/corporate-documents).
The Governance, Nominations & Sustainability Committee meets at least twice per year. In 2019 it met seven times.
33 reviews and proposes to the Board annually the terms of remuneration of the members of the Board 33 based on Zurich’s remuneration rules, reviews and proposes to the Board the terms and conditions of employment of the Group CEO and reviews those of other members of the ExCo, as proposed by the Group CEO, including the annual review of performance objectives and performance against these objectives, proposing respective amendments to the Board, as appropriate, for approval 33 liaises with the Group CEO on other important matters related to employment, salary and benefits 33 reviews the performance achievements of the predefined performance metrics related to short-term and long-term incentive plans (STIP and LTIP), as well as conducting a qualitative assessment of the performance, before reviewing and proposing to the Board the amount of the total variable remuneration pool 33 reviews and makes proposals to the Board on the amounts of Board and ExCo remuneration to be submitted for approval at the AGM
Activities 2019: During 2019, the following topics were in particular focus in the Committee’s discussions: 33 performance of the Group, the countries and the ExCo, as well as the approval of the STIP award level and the LTIP vesting level for the period ending December 31, 2018 33 approval of the total variable remuneration pool for 2018 33 the regulatory environment regarding remuneration, as well as external developments and the implications for Zurich 33 the Ordinance AEC, including the proposed maximum amounts of total remuneration for the Board and the ExCo for the shareholder votes at the AGM on April 3, 2019, and subsequently the results of the votes 33 together with the Risk and Investment Committee, risk management aspects of the Group’s remuneration architecture, as well as key activities with respect to identified key risk taker (KRT) positions, for example the risk-based assessment of KRTs 33 the remuneration report and the Board of Directors report on the approval of the remuneration for the Board of Directors and the ExCo 33 Zurich’s remuneration rules, which were approved by the Board of Directors 33 the annual Corporate Governance Roadshow 33 compensation and remuneration structures of the Board and the ExCo, including share ownership in line with guidelines 33 activities of the Group Pensions Committee 33 the performance and incentive architecture for 2019 and looking ahead into 2020, including the metrics of the long-term incentive plan and how these will support he next strategic cycle.
The Remuneration Committee meets at least twice per year. In 2019 it met seven times.
Audit Committee Composition and membership: Zurich Insurance Group Ltd’s Organizational Rules require the Audit Committee to consist of at least four non-executive Board members, independent from management. Currently, the committee comprises Dame Alison Carnwath (Chairman), Catherine Bessant, Jeffrey Hayman, Monica Mächler and Barry Stowe, all of whom meet the relevant requirements for independence and qualification.
To facilitate an ongoing exchange of information between the Risk and Investment Committee and the Audit Committee, the Chairman of the Audit Committee is a member of the Risk and Investment Committee and at least one member of the Risk and Investment Committee is a member of the Audit Committee. The Chairman of the Board regularly participates in both the Audit and Risk and Investment Committee meetings as a guest.
Key tasks and responsibilities: In general, the Audit Committee: 33 serves as a focal point for communication and oversight regarding financial accounting and reporting, internal control, actuarial practice, and financial and regulatory compliance 33 reviews the Group’s auditing process (including establishing the basic principles relating to and making proposals for the audit of Zurich Insurance Group Ltd and the Group)
33 at least annually, reviews the standards of internal control, including activities, plans, organization and quality of Group Audit and Group Compliance 33 reviews annual and half year consolidated financial statements of the Group, the Group’s updates for the first three months and first nine months of the year and the Financial Condition Report of the Group.
Key tasks and responsibilities: In general, the Risk and Investment Committee: 33 supports the Board to ensure sound risk and investment management for the Group 33 assists the Board to fulfill its duty to
– overseeing the Group’s enterprise-wide risk governance framework (embracing policies, models, methodologies, reporting, systems, processes and people)
– overseeing the impact of risk on economic and regulatory capital requirements 33 Risk management and controls: • reviewing the Company’s and the Group’s general policies and procedures, and satisfy itself that effective systems of risk management are established and maintained
• reviewing the activities, plans, organization and the quality of the risk management and investment management functions 33 General
• reviewing regulatory framework reforms affecting areas within the scope of the RIC’s mandate and recommend any required changes to the Board; • appraising the Board of significant developments in the course of performing the above duties.
33 Two sessions on Cyber and Information security 33 Exposure to long-tail Life risk, e.g. morbidity risk and longevity risk 33 Risk Management Regulatory Update 33 Updates from economic and regulatory capital perspectives 33 Model validation results 2018 and the plan for 2019 33 Credit & country risk update and semi-annual derivative report 33 Update on business resilience 33 GRM strategy implementation update.
Information and control instruments vis-à-vis the ExCo The Board supervises management and monitors its performance through reporting and controlling processes. The Group CEO and other executives provide information and updates through regular reports to the Board. These include reports on key performance indicators and other Group-relevant financial data, existing and emerging risks, and updates on developments in important markets and on industry peers and other significant events. During 2019, the Chairman of the Board regularly met with the Group CEO. The Chairman meets from time to time with other ExCo members and management outside regular Board meetings. The other members of the Board do so as well, meeting with the Group CFO and the Group CRO in particular.
The Group has adopted and implemented a coordinated, formal and consistent approach to risk management and control. Information concerning the Group’s risk management and internal control processes is included in the risk review starting on page 126. The internal audit function, the external auditors and the compliance function also assist the Board in exercising its controlling and supervisory duties. Information on these functions’ major areas of activity is set out on pages 75 to 78.
ExCo Composition As of December 31, 2019, the Exco included members of six nationalities. ExCo members’ business experience covers a broad range of jurisdictions, giving the ExCo profound collective knowledge of international business practices.
The composition as of December 31, 2019 in terms of length of tenure, gender, as well as nationality was as follows and the average length of tenure was 4 years: Group Management as of December 31, 2019
Changes to the ExCo Amanda Blanc, former CEO EMEA and Bank Distribution, decided to step down from her role as of July 2, 2019 (please see her biography in the Annual Report 2018, page 66 under the following link: investor-relations/results-and-reports), and Alison Martin took over the role as CEO EMEA and Bank Distribution as of July 9, 2019, while continuing as Group Chief Risk Officer (Group CRO) until September 30, 2019. On October 1, 2019, Peter Giger took up the role of Group CRO and became a member of the ExCo.
Key tasks and responsibilities: The GBSC acts as a cross-functional advisory body for matters that could materially affect the financial position of the Group as a whole. The committee issues recommendations to the Group CEO.
Executive Committee by length of tenure %, as of December 31, 2019
Core topics are: 33 capital management on capital allocations and lending and borrowing decisions 33 rating management strategy and target ratings management 33 balance sheet planning on liquidity, solvency, investment and asset/liability management strategies and associated capital allocation, including changes to investment strategy 33 business development matters on corporate transactions with third parties, internal restructuring, investments, including real estate, and entry into new types of business and markets 33 material Group reinsurance strategy and reinsurance programs 33 other topics and matters that may have a material impact on the balance sheet of the Group as determined by the chairperson
Key tasks and responsibilities: The GRC’s main function is to review and provide recommendations to the Group CEO on activities related to the Group’s overall risk profile, including insurance, financial markets, credit, operational and strategic risks.
33 regulatory developments affecting the Group’s risk management and the Group’s regulatory reporting 33 prospective changes to capital models and methodologies that have a significant impact on economic solvency ratios 33 the Group’s model validation policy, and validation findings related to capital models and significant valuation models, including remedial actions 33 market and credit risk internal model consumption relative to the Group’s capital allocation, including remedial actions 33 any significant deviations from established target solvency levels by subsidiaries, including remedial actions if needed
The Group Pensions Committee, chaired by Gary Shaughnessy, is responsible for developing, reviewing and advising on the Group governance framework in matters related to retirement benefit arrangements and post-employment benefits, including the relevant policies and processes. It provides oversight and guidance on the Group’s retirement benefit arrangements and post-retirement benefits in matters of benefit design, funding, investment and accounting and provides recommendations to the GBSC on material pension-related matters.
Educational background Mr. Angehrn holds a Ph.D. in mathematics from Harvard University and a Master of Science in theoretical physics from the Swiss Federal Institute of Technology in Zurich (ETH).
Skills and experience Peter Giger has extensive experience in insurance and reinsurance, including in areas of finance, risk, strategy, underwriting and regulatory management. Prior to being appointed as Zurich’s Group Chief Risk Officer and member of the Executive Committee, effective October 1, 2019, he served for four years from 2014 to 2018 as the head of the Swiss Financial Market Supervisory Authority FINMA’s insurance division. During that time he also served as FINMA’s deputy CEO and a member of its executive team. While at FINMA he represented Switzerland in international organizations, instituted standard operating procedures and guidelines, and was instrumental in consolidating Swiss Solvency Test modeling. From 2002 to 2014 he held executive leadership roles at Zurich, including CFO General Insurance from 2010 to 2014. Prior to that he headed Structured Finance at Swiss Re from 1999 to 2002. Mr. Giger began his career at Zurich, holding a series of management positions between 1992 and 1999.
Educational background Mr. Giger has a doctorate in business administration from the University of Zurich, and a master’s degree in business administration, specializing in IT, from the University of St. Gallen.
Skills and experience Jack Howell has more than 20 years’ experience in the financial services sector, of which more than 10 have been in various senior leadership positions for insurance companies in Asia. Prior to his appointment at Zurich, Mr. Howell was the regional officer for Asia for Assicurazioni Generali based in Hong Kong. He joined Generali from Prudential plc Group, where he briefly served as CEO and President Director for PT Prudential Life Assurance, Indonesia, and for almost six years as CEO of Prudential Vietnam Assurance. Before Prudential, he held various positions in AIG in the Philippines, Hong Kong and New York, co-founded a boutique investment bank called TwentyTen, and spent several years as a consultant, including in The Boston Consulting Group. Mr. Howell joined Zurich in September 2016 as CEO for Asia Pacific and became a member of the Executive Committee in October 2016.
Educational background Ms. Martin earned a bachelor’s degree in law, with honors, from the University of Birmingham in 1995. In 1998 she qualified with the Institute of Chartered Accountants in England and Wales as an associate member, and in 2010 she completed the Chartered Financial Analyst investment management certificate.
At Zurich, various governance and control functions help to ensure that risks are identified and appropriately managed and internal controls are in place and operating effectively. The Board is ultimately responsible for the supervision of these activities. Although each governance and control function maintains its distinct mandate and responsibilities, the functions are closely aligned and co-operate with each other through a regular exchange of information, planning and other activities. This approach supports management in its responsibilities and provides confidence that risks are appropriately addressed and that adequate mitigation actions are implemented.
Three lines of defense at Zurich Insurance Group as of December 31, 2019 1st line: Business Management The first line of defense consists of business management and all functions except Group Risk Management, Group Compliance and Group Audit. The first line takes risks and is responsible for day-to-day risk management (i.e. risks are identified and monitored, mitigation actions are implemented and internal controls are in place and operating effectively).
2nd line: Group Risk Management and Group Compliance The second line of defense consists of the two control functions,
Group Compliance is responsible for providing assurance to management that compliance risks within its mandate are appropriately identified and managed. The Group Chief Compliance Officer regularly provides reports to the Audit Committee and has an additional reporting line to the Chairman of the Audit Committee and appropriate access to the Chairman of the Board.
The Group has updated its policy on the rotation of the external audit mandate to adopt best practices adopted by the European Union and as a result will rotate its external auditor in 2021. The Group will thereafter tender its external audit mandate every ten years.
In 2018, in accordance with the new policy and in order to allow the greatest amount of flexibility and time for a smooth transition to the selected audit firm, the Group ran a competitive, transparent and fair tender process to select the firm to replace PwC. The Audit Committee was actively engaged throughout. At the AGM in 2021 Ernst & Young Ltd will be proposed as external auditor for financial year 2021.
Non-audit fees Total fees (including expenses and value added taxes) in the year 2019 for additional services, such as tax advice, audit-related services (primarily for the MCEV review, non audit assurance engagements and actuarial regulatory reviews) and other services (primarily IFRS 17 projects, strategy and forensic services) were USD 19.4 million (USD 16.2 million in 2018).
Supervision and control over the external audit process The Audit Committee regularly meets with the external auditors. During 2019, the Audit Committee met with the external auditors nine times. The external auditors regularly have private sessions with the Audit Committee without management present. Based on written reports, the Audit Committee and the external auditors discuss the quality of the Group’s financial and accounting function and any recommendations that the external auditors may have. Topics considered during such discussions include strengthening of internal financial controls, applicable accounting principles and management reporting systems. In connection with the audit, the Audit Committee obtains from the external auditors a timely report relating to the audited financial statements of Zurich Insurance Group Ltd and the Group.
The Audit Committee, boards and audit committees of subsidiary companies and Group CEO are regularly informed of important audit findings, including adverse opinions, mitigation actions and attention provided by management. Group Audit is responsible for ensuring that issues identified by Group Audit, that could have an impact on the Group’s operations are brought to the attention of the Audit Committee and appropriate levels of management and that timely follow-up action occurs. This is supported by the attendance of the Head of Group Audit at each meeting of the Audit Committee. In addition, the Head of Group Audit meets with the Chairman of the Audit Committee each month.
The Audit Committee assesses the independence of Group Audit and reviews its activities, plans and organization, the quality of its work and its cooperation with the external auditors. As required by the Institute of Internal Auditors’ (IIA) International Standards, the Internal Audit function is quality-reviewed at least every five years by an independent qualified assessor. This review was conducted most recently in 2016 and 2017, and reported to the Audit Committee in February 2017. The results confirmed that Group Audit’s practices conform to all IIA Standards.
Group Compliance performs its activities according to the Global Annual Compliance Plan and reports on progress against plan, outcomes and insights to management, the Audit Committee of the Board or to the regional and local equivalent body.
Each Annual Compliance Plan (global, regional, local) is a risk-based plan and must be prepared on the basis of an independent forward-looking compliance risk assessment, taking into account both internal and external key risk drivers.
As part of Zurich’s commitment to promoting a culture of compliance, Group Compliance establishes and maintains the global reporting mechanism for reporting of concerns. Zurich encourages its employees to speak up and report improper conduct that they believe is illegal, unethical, or violates Zurich’s Code of Conduct or our Group’s policies. Employees are free to report their concerns to management, Human Resources, the Group’s Legal department, its Compliance function, or through the Zurich Ethics Line (or similar service provided locally), a phone and web-based service run by an independent external provider. Zurich does not tolerate retaliation against any employee who reports concerns in good faith.
Shareholders Significant shareholders According to the rules regarding the disclosure of significant shareholdings of Swiss companies listed in Switzerland, it has to be disclosed if certain thresholds starting at 3 percent are reached or if the shareholding subsequently falls below those thresholds. Disclosure must be made separately for purchase positions (including shares, long call options and short put options) and sale positions (including long put options and short call options). The percentage thresholds are calculated on the basis of the total amount of voting rights according to the number of shares issued as disclosed in the commercial register.
Zurich Insurance Group Ltd is obliged to announce shareholdings by third parties in its shares upon receipt of a third-party notification that a threshold has been reached. During 2019, the Group received one such notification that a relevant threshold had been exceeded.
Latin America 0.0 0.1 Rest of the world 7.2 5.0 1 of registered shareholders.
Shareholders’ participation rights Voting rights restrictions and representation Each share entered into the share register entitles the holder to one vote. There are no voting rights restrictions (other than set out under “Limitations on transferability and nominee registrations”, see page 87.
A shareholder with voting rights can attend shareholders’ meetings of Zurich Insurance Group Ltd in person. He or she may also authorize, in writing, another shareholder with voting rights or any person permitted under the Articles of Association and a more detailed directive of the Board to represent him or her at the shareholders’ meeting. Based on the Articles of Association, minors or wards may be represented by their legal representatives, married persons by their spouses and a legal entity may be represented by authorized signatories or other authorized representatives, even if such persons are not shareholders.
Information Policy As of December 31, 2019, Zurich Insurance Group Ltd had 124,969 shareholders registered in its share register, ranging from private individuals to large institutional investors. Each registered shareholder receives an invitation to a shareholders’ meeting. A Letter to Shareholders provides an overview of the Group’s activities as the year progresses and outlines its financial performance. A more comprehensive Annual Report and half-year reports are available on Zurich’s website. Information on the Group’s updates for the first three months and first nine months of the year is also available on Zurich’s website (www.zurich.com/en/investor-relations/results-and-reports). News Releases are distributed in accordance with the Directive on Ad hoc Publicity and available on Zurich’s website www.zurich.com (www.zurich.com/en/media).
Employees Work sustainability is of high concern in today’s world, especially in these times of great change and transformation and we are making it our top priority. The Group, with a long-term vision and a strong sense of purpose, supports and encourages each one of our employees to progress in their careers and build a path for their future.
The Group has already made good progress in promoting a truly diverse and inclusive work environment, and we have received worldwide recognition for this; our recent commitment to granting equal access to paid maternity/ paternity leave globally, is unprecedented in our industry. The Group is committed to providing equal opportunities when recruiting and promoting people, whereby ability, experience, skills, knowledge, integrity and diversity are guiding principles.
The Group actively encourages employee involvement in its activities through publications, team briefings and regular meetings with employees’ representatives. The Group is also part of an agreement with employee representatives of the Group’s companies in Europe. For further information on the Group’s people management activities, see pages 22 and 23 of the Annual Report. In some countries, the Group has established broad-based employee share compensation and incentive plans to encourage employees to become shareholders of the Group.
Customers Our customers are at the center of all our activities and thinking. Society is facing increasingly interconnected and complex environmental, social and governance challenges. The insurance industry cannot be a bystander and where appropriate, it must play its role in addressing these challenges as a manager of risk. Failing to do so, can have a damaging impact on society, stakeholder trust and the reputation of the insurance industry and its customers. That is why we work with our corporate customers and brokers to better manage sustainability risks and strive to promote international best practice standards that help ensure that potentially adverse social, environmental and economic impacts are adequately managed.
East Africa/India 5 Basic Ability: Income protection Germany/Austria/Spain/ Italy/Latin America 6 Savings product Brazil 7 TrueLady Malaysia
3 Zurich’s joint venture with Banco Sabadell. 4 Zurich Santander. 5 Supporting various projects around the world.
We integrate our commitment to sustainability and the UN Global Compact into our underwriting and business decisions. We believe in the value of engaging with customers to understand their business and operations, and working together with them to ensure they have responsible and sustainable business practices in place. This enables us to make better-informed decisions on how we can support customers in developing best practice in areas of ESG ( For further information see pages 20 and 21.
Together with members of the Zurich Flood Resilience Alliance, we continued to help communities reduce flood risk directly benefiting 225,000 people across 13 programs in nine countries. We continued our charitable investment in community programs and many business hours were volunteered by our employees. The Z Zurich Foundation supports flood resilience efforts through donations. For further information see pages 26 and 27.
The share capital of Zurich Insurance Group Ltd may be increased by an amount not exceeding CHF 3,000,000 by issuing of up to 30,000,000 fully paid registered shares with a nominal value of CHF 0.10 each by the voluntary or mandatory exercise of conversion and/or option rights, which are granted in connection with the issuance of loans, bonds, similar debt instruments, equity-linked instruments or other financial market instruments (collectively, the ‘financial instruments’) by Zurich Insurance Group Ltd or one of its Group companies, or by mandatory conversion of financial instruments issued by Zurich Insurance Group Ltd or one of its Group companies, that allow for contingent mandatory conversion into shares of Zurich Insurance Group Ltd, or by exercising option rights which are granted to the shareholders (Art. 5ter 1a). This contingent share capital corresponds to about 20 percent of the total registered shares issued as of December 31, 2019.
Changes to share capital during 2019 During 2019, no shares were issued from authorized or contingent share capital. As a result, on December 31, 2019, the share capital amounted to CHF 14,960,802.70 (149,608,027 shares). The authorized share capital (Art. 5bis 1) amounted to CHF 4,500,000 (45,000,000 shares). The contingent share capital for financial instruments (Art. 5ter 1a) amounted to CHF 3,000,000 (30,000,000 shares) and the contingent share capital for employees (Art. 5ter 2a) amounted to CHF 494,723.20 (4,947,232 shares).
On April 3, 2019, the Annual General Meeting approved the reduction of the ordinary share capital of the Company by CHF 174,000 (1,740,000 shares) from CHF 15,134,802.70 (151,348,027) to CHF 14,960,802.70 (149,608,027 shares) in conclusion of the public share buy-back program for 1,740,000 of Zurich Insurance Group Ltd’s own shares launched in 2018. The capital reduction was executed by the Board of Directors and filed with the Commercial Register of the Canton of Zurich subsequent to the required publications of the notice to creditors. The capital reduction was reduced in the share register effective as of June 21, 2019.
Changes to share capital during 2018 During 2018, a total of 8,176 shares were issued to employees from contingent share capital. As a result, on December 31, 2018, the share capital amounted to CHF 15,134,802.70 (151,348,027 shares) and the authorized share capital (Art. 5bis 1) amounted to CHF 4,500,000 (45,000,000 shares). The contingent share capital for financial instruments (Art. 5ter 1a) amounted to CHF 3,000,000 (30,000,000 shares) and the other contingent share capital for employees (Art. 5ter 2a) amounted to CHF 494,723.20 (4,947,232 shares).
On April 11, 2018, the Board of Directors launched a public share buy-back program for 1,740,000 of Zurich Insurance Group Ltd’s own shares for cancellation purposes, which was completed on May 18, 2018. The respective capital reduction to cancel the shares repurchased under this share buy-back program was conducted in 2019.
For information on changes of share capital during 2017, see the Annual Report 2017 of Zurich Insurance Group, pages 41 to 42 and pages 232 to 233 (www.zurich.com/en/investor-relations/results-and-reports).
Reward decisions for Zurich’s leadership reflect performance against business, customer and employee targets, as well as key risk objectives.” Christoph Franz Chairman of the Remuneration Committee
Zurich operates a balanced and effectively managed remuneration system. The remuneration report provides further details on this, as well as the link between business performance and variable pay decisions for 2019.
Dear Shareholder The remuneration outcomes detailed in this report are a reflection of Zurich’s performance achievements against the Group’s strategic targets. In 2019 Zurich demonstrated further strong performance with the Group exceeding all targets with a business operating profit after tax return on equity of 14.2 percent, expense savings of over USD 1.5 billion, and net cash remittances of USD 10.9 billion, while maintaining a very strong capital base. In 2019, business operating profit (BOP) increased 16 percent, while net income attributable to shareholders (NIAS) increased by 12 percent and was at the highest level over the past decade.
Activities in 2019 Zurich supports continuous improvement to standards of governance, culture and remuneration, and has engaged with regulators in the markets in which we operate where changes to the regulation of remuneration have been proposed. We will continue to monitor developments and best practices in the areas of reward and remuneration-related regulation and review Zurich’s remuneration approach accordingly.
2019 also saw the expansion of customer metrics, in addition to existing financial metrics, to further markets to assess the overall business performance for the funding of short-term incentive awards. The customer metrics now cover the majority of employees participating in short-term incentives, supporting continuous improvement of customer experience. In addition, the enhancements to the performance management and incentive approach shared in the previous year’s remuneration report have been implemented to allow for more flexible, differentiated and merit-based awards.
Details on the remuneration votes of the Board and of the ExCo, are included in the 2020 Board of Directors Report of Zurich Insurance Group Ltd (Board of Directors Report), which accompanies the invitation to the AGM 2020 (www.zurich.com/ investor-relations/shareholder-area/annualgeneral -meeting).
Base salaries/Fees Short-term incentives Service costs for pension benefits Other remuneration
All employees3 1 At target, as a percentage of total remuneration. 2 Considering all members of the ExCo that were active for the full year, including the Group CEO. 3 Other remuneration is included under base salaries/fees for all employees.
The overall STIP awarded as a percentage of target, considering the relevant BOP results and customer metrics in selected markets, along with an assessment of overall qualitative performance for 2019 (2018: 109%).
Vesting level in 2020 as a percentage of target based on the actual achievements for relative total shareholder return (TSR), net income attributable to shareholders’ return on common shareholders’ equity (NIAS ROE) and cash remittance for the performance period 2017 to 2019 (2019: 149%).
CHF 697m The aggregate amount of variable remuneration for 2019 for the entire Group considering the Group’s long-term economic performance (USD: 716m 2018: CHF 678m/USD 693m).
The total variable remuneration, amounting to CHF 697 million, includes the following elements: 33 The total expenditure on cash incentives to be paid for the performance year comprising the amount of the aggregated funding pools under the STIP, and the amounts to be paid under local short-term incentive plans.
33 The total amount of severance payments 2 committed in 2019, regardless of when the payments are due.
The following table provides details on the overall STIP awarded and the LTIP vesting level in relation to the performance achievements under each plan. More information on the Group’s variable remuneration plans can be found in the remuneration framework section later in this report.
1 Zurich defines sign-on payments as payments that are agreed on the execution of an employment contract (whether paid immediately or over time). Sign-on payments may include compensation made prior to a person joining the company and providing any services (payments in advance) or compensation for benefits foregone with a previous employer (replacement payments). Payments in advance are not paid to members of the Board or the ExCo.
2 Zurich defines severance payments as payments that are provided in connection with the termination of an employment relationship. Zurich does not include under the term severance payments, garden leave or similar payments for employees in jurisdictions where such payments are required by applicable law, or where they are based on contractual notice periods which conform with recognized market practice, or where they are non-contractual, but in line with recognized market practice. Zurich does include garden leave or similar payments however, that go beyond recognized market practice, irrespective of whether these are provided pursuant to an agreement or are ex gratia. Severance payments are not paid to members of the Board or the ExCo.
Context The primary measures driving STIP awards for 2019 are: 109% 109% 33 the relevant BOP or other profitability metric achievements and, 33 the relevant customer satisfaction achievements using the net promoter score (NPS) metric where applicable.
For 2019, the remuneration amounts were as follows: Remuneration amounts in CHF millions, for the years ended December 31
Total remuneration 1 For ExCo and all employees, fixed remuneration includes base salaries, employee benefits and service costs for pension benefits. For Directors, the amount includes the portion paid in sales-restricted shares.
2 The cash incentives earned for the year for all employees comprise the amounts under STIP and other local incentive plans which are subject to approval by the applicable local Boards. For all employees, sign-on and severance payments in cash are also included.
4 Actual, gross and for cash amounts based on the accrual principle. 5 The 2018 amounts have been restated from the U.S. dollar amounts disclosed in the remuneration report 2018, to Swiss francs using the relevant exchange rates. 6 Includes the remuneration for members of the ExCo.
More on page 102 33 Long-term incentives: The performance metrics for the LTIP have been aligned to the targets for the next strategic cycle from 2020. The adjusted performance criteria in the vesting grid will be effective for new allocations beginning with the performance period 2020–2022, relevant for vesting decisions from 2023. The changes include increases to the targets for both the NIAS ROE and cash remittance metrics, demonstrating that the bar has been raised with higher performance expectations. The details are outlined in the outlook section later in this report.
More on page 120 33 Board: No changes have been made to Board fees since 2015. As part of the regular monitoring of market developments on Board remuneration, a benchmarking analysis was conducted by Zurich’s independent adviser. Some adjustments to the fee structure are proposed to bring certain fee elements closer to the relevant median levels for companies of a similar size in the Swiss Market Index (SMI). The adjustments are incorporated in the shareholder vote on the maximum amount of remuneration for the Board, and subject to approval, would be applicable from the AGM in 2020. This follows successful completion of the targets set for the strategic cycle ending in 2019 and aligns with the timing of the next strategic cycle from 2020. Further details are provided in the outlook section later in this report.
The following information on the governance of Zurich’s remuneration framework can be found on pages 43 and 59 of the corporate governance report: 33 The governance framework, including the approval framework, which underpins Zurich’s remuneration philosophy, system and practices.
Outlined below is information regarding: 33 The legal and regulatory requirements which this remuneration report complies with.
Legal and regulatory requirements This remuneration report provides all the information that is required by the following regulations with which Zurich complies: 33 Chapter 5 of the Directive on Information Relating to Corporate Governance of the SIX Exchange Regulation (as of March 20, 2018).
33 Information as required by Article 663c para 3 of the Swiss Code of Obligations.
The remuneration for key risk taker positions includes STIP and LTIP with a greater emphasis toward long-term and therefore, deferred remuneration. Group Risk Management, together with other control and assurance functions, provide risk and compliance information about each key risk taker as part of the annual individual performance assessment and for the target cards of the leadership team including the ExCo. This is taken into account when assessing performance and making reward decisions.
Share ownership guidelines To align the interests of the Board and the ExCo with those of shareholders, Directors and members of the ExCo are required to meet the following levels of share ownership: 33 Members of the Board: one times the basic annual fee.
33 Group CEO: vested awards at five times the base salary.
33 Other members of the ExCo: vested awards at two-and-a-half times the base salary.
Directors achieve this requirement by obtaining part of their fee in five-year sales-restricted shares and market purchases. Members of the ExCo achieve this through their participation in the LTIP and market purchases. Directors, the Group CEO and other members of the ExCo have a period of five years to meet their ownership requirements and the Remuneration Committee monitors compliance with these guidelines on an annual basis.
As of December 31, 2019, Directors held 22,510 shares and members of the ExCo held 194,572 shares. At the end of 2019, all Directors and all members of the ExCo who have served at least five years on the Board or the ExCo respectively, met the required share ownership level.
2 Given the vesting level of 178 percent for the share allocations vesting in 2020 and assuming 100 percent vesting in 2021 and 2022. For 2018 the figure represents vesting of 149 percent in 2019 and assumed 100 percent vesting for 2020 and 2021.
33 Employees are provided with a range of benefits based on local market practices, taking into account the Group’s risk-taking capacity on pension funding and investments.
Discretionary incentive awards to reward achievement of key business and individual objectives during the year.
Scope and complexity of the role, level of responsibility, professional experience and geographic location.
Duration n.a. 1 year. 3 – 6 years (target shares subject to three-year cliff vesting and for the ExCo one-half of the vested shares are sales-restricted for an additional three years).
Clawback, malus and hedging n.a. Clawback framework established for members of the ExCo, and in some jurisdictions for additional STIP participants, to allow for recovery, forfeiture and/ or clawback, subject to specific conditions. Malus conditions to reduce or eliminate awards applicable to all STIP participants.
Determination of the final individual STIP award for the year ending December 31, 2019, is set out in the following overview. 3 The STIP award is based on an individual’s STIP target amount, the performance of the business and an individual’s personal achievements. Except for individuals above a certain job level, markets have the option to base the award solely on the individual STIP target amount and the STIP pool achievement level without further individual differentiation.
3 Farmers will implement the enhancements as of 2020. Local plans may deviate somewhat from the Group plan, however they broadly follow the same principles.
Zurich has a clearly defined global performance and development approach where individuals, jointly with their managers, define and agree on annual objectives that support the achievement of the business strategy and operating plans. An individual’s personal achievements consider performance on objectives, as well as the behaviors demonstrated.
These continue to be guided by the Group’s Code of Conduct, purpose and values. At the end of the year, one of three performance categories is assigned: Partially met Fully met Exceeded
Differentiated award levels are determined across the range of performance within each of the performance categories.
Business performance achievements, including a qualitative assessment of the achievements, determine the STIP pool achievement level and the respective funding or allowable spend available for each STIP pool. This can vary between 0 – 175 percent of the target amount. STIP participants are allocated to one of the following STIP pools with the associated key metrics: Underperformance by the business and/or the individual can result in a STIP award that is below the target amount and can be 0 percent. Similarly, if business performance and/or individual performance is above expectations, this can result in a STIP award that is above the target amount and capped at 200 percent of the STIP target amount. The resulting STIP award is paid in cash.
In alignment with the Group’s risk profile and business strategy, and taking into account best practice principles among insurance companies as well as views from proxy advisers and shareholders, long-term incentives are provided with a deferral element that takes into account material risks and their time horizon. Such deferred remuneration is structured to promote the risk awareness of participants and to encourage participants to operate the business in a sustainable manner. An overview of the LTIP for the performance period 2019–2021 is set out on the following page.
Defines the percentage of target shares that will vest. The vesting level is calculated according to an assessment of the prede�ned performance criteria detailed in the vesting grid below. At the end of the three-year performance period each performance metric is assessed independently and has an equal weighting. For the NIAS ROE and cash remittance metrics, linear interpolation is used to determine the level of vesting.
Performance criteria 0% vesting 50% vesting 100% vesting 150% vesting 200% vesting 18th − 13th
Ensures that an external market industry view is taken by considering Zurich’s performance in comparison to its peers.
Key measure for shareholders, supporting the alignment of LTIP participants with shareholder interests, and re�ecting the targets in the �nancial plan.
< USD 8.5 bn USD 8.5 bn USD 9.5 bn USD 10 bn ≥ USD 10.5 bn
1 Each year during the vesting period, the dividend amount is calculated on the number of target shares provided at the date of allocation and this amount is subsequently converted into DEUs based on the closing share price on the day prior to the dividend payment. No dividend equivalent target shares are credited in the year of allocation if the allocation is made after the ex-dividend date. Further, no dividends will accrue on the dividend equivalent target shares. 2 The position of the TSR over the performance period compared with an international peer group of insurance companies derived from the Dow Jones Insurance Titans 30 Index. The Remuneration Committee reviews the peer companies to be included in the relative TSR assessment regularly to ensure that the peer group exhibits a strong TSR correlation and re�ects the Group’s business pro�le and geographic spread. The resulting industry peer group includes the following companies: AIG, Allianz, Allstate, Aviva, AXA, Chubb, Generali, Legal & General, Manulife Financial Corp., MetLife, Munich Re, Progressive Ohio, Prudential Plc, QBE, Swiss Re, The Hartford and Travelers Cos. Inc.
Other remuneration including employee benefits The Group also provides a range of other relevant employee benefits in line with the local market, for example life insurance, medical coverage and flexible benefits. Further, the Group operates a number of mobility-related policies to facilitate the movement of people across the organization.
The following section sets out the remuneration and shareholdings of members of the Board of Directors and of members of the ExCo, as well as the remuneration of all employees.
The following tables set out the actual fees paid to the Directors for 2019 and 2018 in Swiss francs. In 2019, eight members served for the full year and four members served for part of the year. In 2018, eight members served for the full year and four members served for part of the year.
T. de Swaan, former Chairman 6,11 187,500 n.a. n.a. – 187,500 – 187,500
The share price as of June 15, 2019 (CHF 337.30) 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.
6 Neither the Chairman nor the Vice-Chairman received any additional fees for their committee work on the Board of Zurich. 7 At the AGM on April 3, 2019, Michael Halbherr, Jasmin Staiblin and Barry Stowe were elected as members of the Board, and David Nish retired from the Board.
10 As of June 16, 2018, Michel Liès was allocated 2,523 shares, Christoph Franz was allocated 672 shares, and the other members of the Board were allocated 403 shares. The share price as of June 15, 2018 (CHF 297.20) 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.
Remuneration and personal loans for former Directors No benefits (or waiver of claims), loans, advances or credits have been provided to former Directors during 2019 at conditions which are not at arm’s length, nor were any provided during 2018.
Related parties to the Directors or to former Directors No benefits (or waiver of claims) have been provided to related parties of the Directors or related parties of former members of the Board during the years 2019 and 2018, nor had any related party of the Directors or of former members of the Board any outstanding loans, advances or credits as of December 31, 2019 and 2018.
Number of Zurich Insurance Group Ltd shares as of December 31 Ownership of shares
Remuneration of the ExCo The total remuneration of the members of the ExCo for 2019 comprises the value of base salaries, short-term cash incentives, the target share allocations made under the LTIP in 2019, pensions and other remuneration including employee benefits. To assist with decisions regarding the remuneration structure and the mix of the individual remuneration elements for members of the ExCo, the Board conducts benchmarking studies on a regular basis, taking into account relevant market practices within peer groups, as well as internal relativities.
The remuneration structures and practices of a core peer group, consisting of the following insurance and reinsurance firms in the Dow Jones Insurance Titans 30 Index, are analyzed: AIG, Allianz, Allstate, Aviva, AXA, Chubb, Generali, Legal & General, Manulife Financial Corp., MetLife, Munich Re, Progressive Ohio, Prudential Plc, QBE, Swiss Re, The Hartford and Travelers Cos. Inc.
The distribution of the individual elements making up the total remuneration of the ExCo in 2019, is set out in the following chart and is based on the target values for the performance-related remuneration. It shows an appropriate balance of remuneration elements, with a significant emphasis on performance-related remuneration (STIP and LTIP), particularly long-term, deferred remuneration.
Base salaries Short-term incentives Service costs for pension benefits Other remunerationLong-term incentives 1 At target, as a percentage of total remuneration. 2 Considering all members of the ExCo that were active for the full year, including the Group CEO.
Amounts of remuneration for the ExCo The following table shows the total remuneration in 2019 and 2018 for the highest-paid individual, which was Mario Greco, Group CEO, along with the total remuneration for all members of the ExCo (including the amounts for the Group CEO). Below the total amounts, the values of any one-time remuneration awards and the amounts of contractually agreed remuneration after stepping down from the ExCo and during the notice period, are shown.
Remuneration of the highest-paid individual and all members of the ExCo (including the highest-paid)
2 On the basis of 14 members and former members of the ExCo, of whom 10 served in the ExCo during the full year in 2019. 3 On the basis of 14 members and former members of the ExCo, of whom 11 served in the ExCo during the full year in 2018. 4 The remuneration of the ExCo for 2018, disclosed in the remuneration report 2018 in U.S. dollars, has been restated in Swiss francs using the relevant exchange rates. 5 In line with applicable laws where the executives are employed, Zurich paid the company-related portion of contributions to social security systems, which amounted to
6 The amounts have been translated from CHF to USD at the relevant exchange rates throughout the year and the cash incentive to be paid in 2020 has been translated at the year-end rate in 2019.
Based on these figures, the value of the total remuneration for all members of the ExCo comprises 30 percent in fixed remuneration comprising base salaries, service costs for pension benefits and other remuneration including employee benefits (31 percent in 2018), and 70 percent in performance-related remuneration comprising cash incentive awards under the STIP and the value of the target share allocations under the LTIP (69 percent in 2018). The emphasis within variable remuneration lies on the deferred part, with 52 percent represented by target performance shares under the LTIP and 48 percent as cash incentive awards under the STIP.
33 Base salaries: See the remuneration elements table on page 101 for further information.
• STIP target: The STIP target percentages for the members of the ExCo for 2019 are 100 percent of the base salary.
As a result of the funding, and of the assessment of the performance achievements, individual STIP awards for each member of the ExCo are determined and approved by the Board. The maximum STIP award for all members of the ExCo is 200 percent of the individual target amount.
The LTIP target percentages for the allocation in 2019 varied between 125 percent and 225 percent of base salary for members of the ExCo and the maximum vesting level, to be assessed in 2022, is 200 percent of the aggregate number of target shares and dividend equivalent target shares.
The LTIP vesting level in 2020 for shares allocated in 2017 is 178 percent. No discretionary adjustment was made to the calculated vesting level.
33 Service costs for pension benefits: The total value of pension benefits accruing to members of the ExCo during the year are calculated on the basis of the service costs for the company as assessed under IAS 19 accounting principles. Service costs value the amount of the pension benefits accruing during the year and for defined contribution plans, take the amount of the company contribution paid during the year. Members of the ExCo participate in the pension plan arrangements of the entities where they are employed. The Group’s philosophy is to provide pension benefits through cash balance and/or defined contribution plans where funds are accumulated throughout a career to provide retirement benefits. The majority of the ExCo participate in such plans and over time, all future members of the ExCo will participate in such plans. The remaining members of the ExCo participate in defined benefit plans that provide retirement benefits based on final pensionable earnings and the number of years of service. Normal retirement ages vary from 60 to 65.
33 Other payments and share allocations: These are extraordinary and include payments and share allocations to compensate incentive plan forfeitures with previous employers.
Audited Special payments and termination arrangements, additional honoraria and remuneration, and personal loans for members of the ExCo During 2019, there was one new member appointed to the ExCo as an external appointment, and one member relinquished all responsibilities as a member of the ExCo.
Related parties to members or former members of the ExCo No benefits (or waiver of claims) have been provided to related parties of members of the ExCo or related parties of former members of the ExCo during 2019 and 2018. No party related to members of the ExCo or former members of the ExCo had any outstanding loans, advances or credits as of December 31, 2019 and 2018.
Year of vesting 2018 – – – – 2019 – – – –
Within the context of the regular LTIP allocations made in 2019, these performance-based share allocations will be considered for vesting in 2022, with half of the resulting vested shares being sales-restricted for an additional threeyear period.
Audited Shareholdings of the members of the ExCo The actual shareholdings of each member of the ExCo, active as of December 31, 2019, are shown in the following table for the past two years.
Trading plans To facilitate the sale of shares for members of the ExCo, the Board approved the implementation of trading plans under a predefined transaction program effective as of 2008. The terms and conditions of the transactions have to be defined and they cannot be changed. All trading plans require the approval of the Chairman of the Board. The establishment of a trading plan by an ExCo member is reported to the SIX Swiss Exchange according to the rules on disclosure of management transactions. As of December 31, 2019, there were no trading plans in place. Further, no trading plans were entered into in 2019 or 2018.
The following section includes information regarding the total remuneration earned by employees for 2019 and 2018 across the Group, including remuneration for members of the ExCo.
Total remuneration for all employees in CHF millions, for the years ended December 31 2019 2018 1
Base salaries and other remuneration 2 4,534 4,126 Service costs for pension benefits 3 407 427
5 Includes the value of target performance share allocations made under the Group’s LTIP, which assumes vesting in 2022 at 100 percent of target and any other target share allocations such as sign-on payments in shares.
Unvested target share allocations 409 402 Unvested restricted share allocations 10 19 Vested but sales-restricted shares 229 113 Value of overall outstanding deferred remuneration 648 534 1 The 2018 amounts have been restated from the U.S. dollar amounts disclosed in the remuneration report 2018, to Swiss francs using the relevant exchange rates.
Impact on net income in 2019 and 2018 from remuneration made in prior years The LTIP vesting level determines the actual number of shares to be awarded to participants relative to the target shares initially allocated. Differences in value between the initial estimated amount expensed in the income statement for the LTIP and the actual shares vesting in 2020, along with adjustments to the estimated value of shares vesting in 2021, depending on performance to date, are reflected in the 2019 consolidated income statement in line with accounting principles. For the 2017 and 2018 plans with shares vesting in 2020 and 2021 respectively, there was an increase of USD 55 million in the expense recognized in the 2019 income statement to reflect actual performance to date compared with original estimates. In 2018, there was an increase of USD 11 million to the expense recognized in the income statement to reflect adjustments due to actual performance.
33 Sign-on payments are payments that are agreed on the execution of an employment contract (whether paid immediately or over time). Sign-on payments may include compensation made prior to a person joining the company and providing any services (payments in advance) or compensation for benefits foregone with a previous employer (replacement payments). Payments in advance are not paid to members of the Board or the ExCo. Any replacement payments for members of the ExCo, including the Group CEO, have to be approved by the Board based on a proposal by the Remuneration Committee.
33 Severance payments are provided in connection with the termination of an employment relationship. Zurich does not include under the term severance payments, garden leave or similar payments for employees in jurisdictions where such payments are required by applicable law, or where they are based on contractual notice periods which conform with recognized market practice, or where they are non-contractual, but in line with recognized market practice. Zurich does include garden leave or similar payments however, that go beyond recognized market practice, irrespective of whether these are provided pursuant to an agreement or are ex gratia. Severance payments are not paid to members of the Board or the ExCo.
The following table discloses sign-on and severance payments committed to key risk takers. Key risk takers are incumbents of Zurich’s most senior positions, as well as positions that have a significant influence on the risk profile of the company. For key risk taker roles where the incumbent is a member of the ExCo, no payments in advance and/or severance payments have been made. Replacement payments for the ExCo in 2019 and 2018 are included where such payments were made.
With the next strategic cycle beginning from 2020, the remuneration architecture has been reviewed to ensure it continues to support the achievement of the new targets, complies with legal and regulatory requirements and best market practices, and aligns with risk considerations. Following the review, the main changes proposed relate to alignment of the LTIP performance criteria and adjustments to certain fee elements of the Board.
• The last change to the LTIP metrics took place in 2017 when the cash remittance targets were increased by USD 0.5 billion.
• The last changes to Board fees were made in 2015. Given successful completion of the targets set for the 2017–2019 strategic cycle, as well as the results of the benchmarking analysis, some adjustments are proposed to bring certain elements of the fee structure closer to median levels of similarly-sized companies in the SMI. Applicable as of the AGM in 2020 and coinciding with the next strategic cycle from 2020, the proposal is to increase: – Chairman fees from CHF 1,500,000 to CHF 2,000,000; – Vice-Chairman fees from CHF 400,000 to CHF 450,000; – Committee membership allowances from CHF 60,000 to CHF 80,000; – Committee Chair fees by CHF 20,000 each.
• The adjustments in the fee structure are incorporated in the maximum amount of remuneration for the Board, which is submitted for approval at the AGM. Further information can be found in the Board of Directors Report 2020 (www.zurich.com/investor-relations/shareholder-area/annual-general-meeting).
Shareholders are given the opportunity to express their opinion on the remuneration report 2019, through an advisory vote at the AGM in 2020. Shareholders will also receive the Board of Directors Report 2020 (www.zurich.com/ investor-relations/shareholder-area/annual-general-meeting) which includes information regarding the two remuneration votes on the total maximum amounts of remuneration for the Board and for the ExCo, taking place at the AGM on April 1, 2020. The votes allow shareholders to have a say on the prospective remuneration for the Board and for the ExCo arising from Zurich’s remuneration policies.
An audit involves performing procedures to obtain audit evidence on the disclosures made in the remuneration report with regard to compensation, loans and credits in accordance with articles 14–16 of the Ordinance. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the remuneration report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of remuneration, as well as assessing the overall presentation of the remuneration report.
Risk management supports our business actively to enable Zurich to take risks in an informed and disciplined manner, within a predetermined risk appetite and tolerance, and provides the business with constructive challenges to manage risks.
Our integrated risk management framework supports the achievement of the Group’s strategy by upholding an effective risk-based control environment
We are experts in identifying and responding to emerging and current risks that impact our customers, societies and business.” Peter Giger Group Chief Risk Officer
We use sensitivity and scenario analyses to assess the potential impact of conditions under stress. The Group identifies plausible threat scenarios and quantifies their potential impact on our businesses and financial metrics. Depending on the outcome, we develop, implement and monitor appropriate actions.
By effectively managing our risks, we maintain our resilience and make sure we are there when our customers need us. Zurich’s risk review describes our major risks and how we manage them.
Sustainability with a focus on climate change The Group’s commitment to sustainability, including managing the risks posed by climate change, continues to be an integral part of Zurich’s risk management approach. The Group promotes best practices by managing the interconnectivity of environmental, social and governance (ESG) risks by engaging with its customers and investees.
Climate change is the most complex risk facing our society today: it is intergenerational, international, and interdependent. Zurich’s approach to managing climate risk is rooted in our multi-disciplinary Group-wide risk management process. As the insurance industry is going through a transformation, a key focus area for Zurich is the transition risks which require far-reaching economic, technological and social structural changes.
methodology supports us in delivering oversight, risk insights and enhances Zurich’s capabilities in managing risks.
Economic risk profile Highlights by risk type Insurance risk The Group’s insurance risk is diversified by geography, line of business, product and customer, supported by our centralized purchase of reinsurance. With the falling interest rate environment, Life has replaced P&C as our largest business segment for Z-ECM capital.
Other credit risk With proactive governance, the Group’s credit risk exposure from reinsurance assets remains at a high quality.
The major risk management objectives at Zurich Insurance Group (Zurich, or the Group) are to: 33 Support achievement of the Group strategy and protect capital, liquidity, earnings and reputation by monitoring that risks are taken within the Group’s risk tolerance 33 Enhance value creation by embedding disciplined risk-taking in the company culture and contribute to an optimal risk-return profile where risk reward trade-offs are transparent, understood, and risks are appropriately rewarded 33 Efficiently and effectively diversify risk and avoid or mitigate unrewarded risks 33 Encourage openness and transparency to enable effective risk management 33 Support decision-making processes by providing consistent, reliable and timely risk information 33 Protect Zurich’s reputation and brand by promoting a sound culture of risk awareness, and disciplined and informed risk taking
The risk management framework is based on a governance process that sets forth clear responsibilities for taking, managing, monitoring and reporting risks.
The Zurich Risk Policy is the Group’s main risk governance document. It sets standards for effective risk management throughout the Group. The policy describes the Group’s risk management framework, provides a standardized set of risk types, and defines the Group’s appetite for risks at Group level. Risk-specific policy manuals provide guidelines and procedures to implement the principles in the Zurich Risk Policy. Ongoing assessments verify that requirements are met.
The Group identifies, assesses, manages, monitors and reports risks that have an impact on the achievement of its strategic objectives by applying its proprietary Total Risk Profiling™ (TRP) methodology. The methodology allows Zurich to assess risks in terms of severity and probability and supports the definition and implementation of mitigating actions. At Group level, this is an annual process, followed by regular reviews and updates by management.
The Group’s risk appetite and tolerance reflects Zurich’s willingness and capacity to take risks in pursuit of value, and sets boundaries within which the businesses act. By monitoring that risks are taken within agreed risk appetite levels and tolerance limits, Zurich protects its capital, liquidity, earnings and reputation. The Group regularly assesses and, as far as possible, quantifies material risks to which it is exposed.
For information on the Group’s overall governance, including the Board of Directors and Group executive level, see the ‘corporate governance report (unaudited).’
Leads the Group Risk Management function, which develops frameworks and methodologies for identifying, measuring, managing and reporting risks throughout the Group. The Group CRO has direct access to the Board of Directors.
Each country has a dedicated risk management team located with the local management team for effective business partnering activities, serving both management and legal entity view.
The risk function is independent of the business by being a vertically integrated function where global risk employees report directly into the Group CRO, except for Farmers’ Chief Risk Officer, who has a matrix reporting line to the Group CRO, or unless otherwise required by local laws or regulations. Risk officers are embedded in the business, positioning them to support and advise, and independently challenge, business decisions from a risk perspective. As business advisers on risk matters, the risk officers, equipped with technical risk skills as well as business skills, help foster a risk-aware culture in the business.
The Group manages capital to maximize long-term shareholder value while maintaining financial strength within its ‘AA’ target range, and meeting regulatory, solvency and rating agency requirements.
The Group seeks to maintain a balance between higher returns for shareholders on equity held, and the security a sound capital position provides. Dividends, share buy-backs, and issuances and redemption of debt have a significant influence on capital levels. In 2019, the Group paid a dividend out of retained earnings, bought own shares to avoid dilution from share-based employee plans and cancelled shares bought back in 2018 through the public share buy-back program, issued senior debt to finance redemptions and investments in the Group’s development, and called hybrid debt that was re-financed during 2019.
For details on issuances and redemptions of debt, see note 18 of the consolidated financial statements.
For details on the share buy-back program, see note 19 of the consolidated financial statements.
Internally, the Group uses its Zurich Economic Capital Model (Z-ECM) for assessing its economic capital adequacy. Z-ECM targets a total capital level that is calibrated to an ‘AA’ financial strength. Zurich defines the Z-ECM capital requirement as the capital required to protect the Group’s policyholders in order to meet all of their claims with a confidence level of 99.95 percent over a one-year time horizon.
The Group uses Z-ECM to assess the economic capital consumption of its business on a one-balance-sheet approach. Z-ECM is an integral part of how the Group is managed. It is embedded in the Group’s organization and decisionmaking processes, and is used in capital allocation, business performance management, pricing, and communication. Z-ECM quantifies the capital required for insurance-related risk (including premium and reserve, natural catastrophe, business and life insurance risk), market risk including investment credit risk, reinsurance credit risk, other credit risk, and operational risk.
At the Group level, Zurich compares Z-ECM capital required to the Z-ECM available financial resources (AFR) to derive an economic solvency ratio (Z-ECM ratio). Z-ECM AFR reflects financial resources available to cover policyholder liabilities in excess of their expected value. It is derived by adjusting the IFRS shareholders’ equity to reflect the full economic capital base available to policyholders to absorb any unexpected volatility in the Group’s business activities.
The chart below shows the development of the Group’s Z-ECM AFR, Z-ECM capital required and Z-ECM ratio over time. As of January 1, 2020, the Z-ECM ratio was estimated at 129% with an error margin of +/–5 percentage points.
The chart below shows an analysis of the composition of the Group’s Z-ECM available financial resources as of July 1, 2019.
Scenarios are defined as events that have a small probability of occurring but that could, if realized, negatively affect the Group’s Z-ECM AFR. The impact of insurance-specific scenarios on the required capital is not taken into account.
On October 29, 2019, S&P Global Ratings revised to positive from stable the outlook of Zurich Insurance Company Ltd and its core subsidiaries and affirmed the ‘AA–’ long-term insurer financial strength and issuer credit ratings. This rating action is based on S&P Global Ratings increased confidence “in the strength and resilience of Zurich’s profitability and business risk profile, relative to peers, and the sustainability of the Group’s very strong capital adequacy.”
Impact on the Z-ECM ratio due to property and casualty risk-specific scenarios:3
Europe windstorm 1 Z-ECM is calibrated at a 99.95 percentile of value at risk (equivalent to a ‘AA’ rating). 2 Credit spreads (CS) include mortgages, including and excluding euro sovereign spreads. Sensitivity is net of pro�t sharing with policyholders. 3 The insurance risk-speci�c scenarios relate to natural catastrophe events that are estimated on a modeled 250-year net aggregate loss (equivalent to a 99.6 percent probability of non-exceedance).
The Group endeavors to manage its capital so that its regulated entities meet local regulatory capital requirements. In each country in which the Group operates, the local regulator specifies the minimum amount and type of capital that each of the regulated entities must hold in addition to their liabilities. In addition to the minimum capital required to comply with the solvency requirements, the Group aims to hold an adequate buffer under local solvency requirements to ensure regulated subsidiaries can absorb volatility and meet local capital requirements.
Regulatory requirements in the UK The United Kingdom left the EU and the EEA on January 31, 2020. Under the EU Withdrawal Agreement Act, the regulatory requirements are expected to remain consistent with Solvency II until the end of the transition period, December 31, 2020. After that date we currently expect the UK regulatory regime to maintain a high level of ongoing alignment with the Solvency II regulatory requirements.
Regulatory requirements in other jurisdictions Every country has a capital standard for insurance companies. Several jurisdictions (e.g., Brazil and Mexico) have taken approaches similar to Solvency II.
Insurance risk is the inherent uncertainty regarding the occurrence, amount or timing of insurance cash flows. The profitability of insurance business is also susceptible to business risk in the form of unexpected changes in expenses, policyholders’ behavior, and fluctuations in new business volumes. Zurich manages insurance risk through: 33 Specific underwriting and claims standards and controls 33 Robust reserving processes 33 External reinsurance
The Group is exposed to losses that could arise from natural and man-made catastrophes. The main concentrations of risks arising from such potential catastrophes are regularly reported to executive management. The most important peril regions and natural catastrophes (Nat Cat) continue to be U.S. and Caribbean windstorm, California earthquake and Europe windstorm.
To ensure global consistency, Nat Cat exposures are modeled in a Group function. Potential losses from property policies with material exposure in hazard-prone geographical areas and from worker injury policies with material exposure in U.S. seismic zones are probabilistically modeled. Losses for other lines of business are estimated based on adjustments to these modeled results. Risk modeling mainly addresses climate-induced perils such as windstorm, flood, tornado, and hail, and geologically-induced perils such as earthquake.
Zurich constantly reviews and expands the scope and sophistication of its modeling and strives to improve data quality. Catastrophe research and development is strengthened to increase the focus on the risks from a changing climate. It supplements internal know-how with external knowledge (e.g., the Advisory Council for Catastrophes). Zurich is a shareholder of catastrophe exposure and loss data aggregation and estimation firm PERILS AG, Switzerland and is a member of the open-source initiative Oasis Loss Modeling Framework.
Man-made catastrophes Man-made catastrophes include events such as industrial accidents, terrorism and cyber attacks.
Property & Casualty business – Direct written premiums and policy fees by line of business – current period in USD millions, for the year ended December 31, 2019 Motor Property Liability
Property & Casualty business – Direct written premiums and policy fees by line of business – prior period in USD millions, for the year ended December 31, 2018 Motor Property Liability
Life insurance risk The risks associated with life insurance include: Life liability risk 33 Mortality risk – when on average, the death incidence among the policyholders is higher than expected 33 Longevity risk – when on average, annuitants live longer than expected 33 Morbidity risk – when on average, the incidence of sickness or disability among the policyholders is higher or recovery rates from disability are lower than expected
Credit risk 33 Credit risk – the risk associated with a loss or potential loss from counterparties failing to fulfill their financial obligations, which is analyzed in the ‘market risk, including investment credit risk’ and ‘other credit risk’ sections
The Group is also exposed to investment and surrender risks related to bank-owned life insurance contracts sold in the U.S. These risks have reduced significantly in recent years as several have switched into less risky investment divisions. See heading ‘other contracts’ in note 7 of the consolidated financial statements for additional information.
The Group has a dynamic hedging strategy to reduce the investment risk associated with the closed book of variable annuities written by its U.S. subsidiary Zurich American Life Insurance Company. This exposure has fallen substantially as a result of several policy buy-back programs since 2015.
Analysis of sensitivities for Life business insurance risk The Group uses market-consistent embedded value reporting principles, which allow Zurich to increase its understanding of, and report on, the risk profile of its life products, and how these risks would change under different market conditions. Embedded value is a measure that markets use to value life businesses. For more information, see the ‘embedded value report 2019’ (unaudited but subject to assurance review) at www.zurich.com/ investor-relations/results-and-reports.
Reinsurance for Property & Casualty and Life businesses The Group’s objective in purchasing reinsurance is to provide market-leading capacity for customers while protecting the balance sheet, supporting earnings volatility management, and achieving capital efficiency. The Group follows a centralized reinsurance purchasing strategy for both Property & Casualty (P&C) and Life, and bundles programs, where appropriate, to benefit from diversification and economies of scale. In support of the Group’s empowerment-based management model and to align risk-bearing capacities between the Group and individual country operations, the internal reinsurance vehicle applies to all externally reinsured lines of business. In addition, to actively manage and reduce potential claims-recovery risks on facultative cessions and to support the strategy on operational excellence, the Group started to tailor specific facultative property and casualty reinsurance facilities.
Changes in 2019 include the expansion of the Group’s global catastrophe treaty limit to USD 1 billion (up from USD 750 million) and the transition from several regional surety treaties to one single global surety treaty to enhance coverage and generate efficiency.
Group overview Governance Risk review Financial review 2019 Group catastrophe reinsurance protection in USD millions, as of December 31, 2019 1 Europe cat treaty calculated with EUR/USD exchange rate as of July 31, 2019.
Retention Regional cat treaties Global cat treaties U.S. wind swap Combined global cat treaty3
The Group manages the market risk of assets relative to liabilities on an economic total balance sheet basis. This is done to achieve the maximum risk-adjusted excess return on assets relative to the liability benchmark, while taking into account the Group’s risk appetite and tolerance and local regulatory constraints.
The Group may use derivative financial instruments to mitigate market risks arising from changes in currency exchange rates, interest rates and equity prices, from credit quality of assets, and from commitments to third parties. The Group enters into derivative financial instruments mostly for economic hedging purposes and, in limited circumstances, the instruments may also meet the definition of an effective hedge for accounting purposes.
Risk from interest rates and credit spreads Interest-rate risk is the risk of an adverse economic impact resulting from changes in interest rates, including changes in the shape of yield curves when valuing interest rate sensitive investments and derivatives relative to fair value of insurance liabilities. It includes also other interest-rate sensitive balance sheet items such as liabilities investment contracts, debt issued by the Group, commercial and residential mortgages, employee benefit plans, and loans and receivables.
Analysis of market risk sensitivities for interest rate, equity and credit-spread risks
In addition to the sensitivities, management uses stress scenarios to assess the impact of more severe market movements on the Group’s financial condition. For more information on stress scenarios, see Group economic net asset sensitivities (unaudited), below.
Analysis of economic sensitivities for interest-rate risk Table 4 shows the estimated net impact before tax of a 100 basis point increase or decrease in yield curves after consideration of hedges in place, as of December 31, 2019 and 2018.
Rest of the business (155) (192) 100 basis point decrease in the interest rate yield curves Property & Casualty (165) (8)
Analysis of economic sensitivities for credit spread risk Table 6 shows the estimated net impact before tax from a 100 basis points increase in corporate credit spreads, as of December 31, 2019 and 2018. The sensitivities apply to all fixed income instruments, excluding government, supranational and similar debt securities. For Life business the loss-absorbing capacity of liabilities for losses on credit spreads are not included, as they are not modeled in the replicating portfolios.
Debt securities The Group is exposed to credit risk from third-party counterparties where the Group holds securities issued by those entities. The default risk is controlled by Group counterparty-concentration risk limits keeping the size of potential losses to an acceptable level.
Debt securities by rating of issuer as of December 31 2019 2018
The risk-weighted average credit rating of the Group’s debt securities portfolio is ‘A–’ in 2019, compared with ‘A–’ in 2018
As of December 31, 2019, the largest concentration in the Group’s debt securities portfolio was government-related at 49 percent of all debt securities. In all other categories, a total of USD 30.2 billion (41 percent) was secured. As of December 31, 2018, 49 percent of the Group’s debt portfolio was invested in government-related securities. In all other categories, a total of USD 31.4 billion (44 percent) was secured.
Cash and cash equivalents amounted to USD 7.9 billion as of December 31, 2019 and USD 8.6 billion as of December 31, 2018. The risk-weighted average rating of the overall cash portfolio was ‘A–’ as of December 31, 2019 and ‘A–’ as of December 31, 2018. The ten largest bank exposures represent 74 percent of the total, whose risk-weighted average rating was ‘A’ as of December 31, 2019 and ‘A+’ as of December 31, 2018.
To limit credit risk, derivative financial instruments are typically executed with counterparties rated ‘A–’ or better by an external rating agency, unless collateral is provided as per Zurich’s risk policy manuals. The Group’s standard practice is to only transact derivatives with those counterparties for which the Group has in place an ISDA Master Agreement, with a Credit Support Annex. This mitigates credit exposures from over-the-counter transactions due to close-out netting and requires the counterparty to post collateral when the derivative position exceeds an agreed threshold. The Group further mitigates credit exposures from derivative transactions by using exchange-traded or centrally cleared instruments whenever possible.
The Group has counterparty limits, which are regularly monitored. Exposure to counterparties’ parent companies and subsidiaries is aggregated to include reinsurance assets, investments, derivatives, and certain insurance products. There was no unapproved material exposure in excess of the Group’s limits for counterparty aggregation as of December 31, 2019 nor December 31, 2018.
Reinsurance assets in table 9 are shown before taking into account collateral such as cash or bank letters of credit and deposits received under ceded reinsurance contracts. Unsecured reinsurance assets shown are after deducting collateral. Except for an immaterial amount, letters of credit are from banks rated ‘A–’ or better. Collateral increased by USD 0.7 billion to USD 10.3 billion per December 31, 2019, compared with 2018.
Rating 1 The value of the collateral received amounts to USD 10.3 billion and USD 9.6 billion as of December 31, 2019 and 2018, respectively.
Operational risk is the risk of financial loss or gain, adverse reputational, legal or regulatory impact, resulting from inadequate or failed processes, people, systems or from external events, including external fraud, catastrophes, or failure in outsourcing arrangements. Zurich has a framework to identify, assess, manage, monitor, and report operational risk within the Group. Within this framework, the Group: 33 Uses a scenario-based approach to assess, model and quantify the capital required for operational risk for business units under extreme circumstances. This approach allows information to be compared across the Group and highlights the main scenarios contributing to the Z-ECM capital required.
Key risk and capital indicators Z-ECM, in USD billions July 1, 2019 January 1, 2019
Strategic risks can arise from: 33 Inadequate risk-reward assessment of strategic plans 33 Improper execution of strategic plans 33 Unexpected changes to underlying assumptions
The Group works to reduce unintended risks of strategic business decisions through its risk assessment processes and tools, including the Total Risk Profiling™ process. As part of the annual assessment of strategic risks, the Executive Committee (ExCo) assessed potential risks from both external and internal factors, looking at 2020 and beyond. These include: macro-economic risks such as financial stress due to geopolitical uncertainties and monetary policy with impacts primarily on insurance and market risk; adoption to post-Brexit legal and regulatory regime; adequately transform propositions and approaches for new customer segments and other changes affecting competitiveness in markets where Zurich is active; and information security including cyber and business resilience risks. The ExCo has defined actions to respond as appropriate and reviews changes to the key risks and their status of actions at least quarterly.
The Group evaluates the risks of merger and acquisition (M&A) transactions both from a quantitative and a qualitative perspective. The Group conducts risk assessments of M&A transactions to evaluate risks specifically related to integrating acquired businesses.
Risks to the Group’s reputation Risks include acts or omissions by the Group or any of its employees that could damage the Group’s reputation or lead to a loss of trust among its stakeholders. Every risk type has potential consequences for Zurich’s reputation. Effectively managing each risk type supports preventing adverse reputation outcomes.
Zurich’s ambition is to be known as one of the most responsible and impactful businesses in the world. Trends like globalization, the mobility of talent and funds, shifting geopolitics, reskilling for a digital workforce, demographics, and climate change all pose immensely complex social issues. These issues demand solutions from an increasingly stretched set of governmental and multilateral institutions.
Zurich works with its customers and investee companies to ensure responsible and sustainable business practices while promoting best practices in managing environmental, social, and governance (ESG) risks. The Group has policies in place that define the ESG topics for which Zurich has no underwriting or investment appetite. Zurich continuously works to develop relevant products and services that help solve today’s most pressing societal and environmental issues.
Sustainability risk framework To support the Group’s businesses in applying its purpose and values as well as mitigating reputational risk impacts, Zurich has established a systematic and integrated approach to identifying, assessing and recommending action on potential risk and opportunity areas from a sustainability perspective across all the Group’s activities, but in particular in Group Investment Management and Group underwriting.
33 Risk assessment: assess issues related to public commitments, the role of insurance underwriting, market exposure and materiality. The executive committee (ExCo) approves position statement on issues, recommends business actions, and issues for reputational management considerations.
Zurich’s underwriting and investment activities apply those positions across portfolios based on stated thresholds and verified third-party data. Wherever possible, for customers that are on the margins of Zurich’s thresholds, Zurich engages and works together with customers to ensure responsible and sustainable business practices. This engagement period may be short, but in some cases can be for a period of up to two years, depending on which part of the renewal cycle customers are in and the time required for them to demonstrate credible progress on ESG issues.
Climate-related physical risks Changes are expected in the frequency, severity and geographical distribution of extreme weather events such as tropical cyclones and extreme rainfall and associated flooding or heat waves in the event that society fails to limit climate change to well below an increase of two degrees Celsius. Scientific consensus suggests society is likely to experience devastating impacts as a result of these changes. Current climate models, such as the International Panel on Climate Change (IPCC) model upon which Zurich bases its internal climate scenarios, indicate that physical climate-change risk will begin to rise more materially after the next two decades if left unmitigated.
Climate-related transition risk Each major economy is likely to respond to transition risks in specific ways, and within different time periods. Shifts toward a low-carbon economy carried out in specific sectors are likely to affect not only those individual sectors, but other parts of the economy as well. There are at least three aspects to consider within this transition process; its affect on technologies, economies, and society. The insurable risks related to these transitions could develop in many different ways.
While transition risks are not considered material in the short term, strategic responses to these risks are underway. These include the definition of an overall differentiated market position on climate change that is tied to the Group’s purpose and values, and the development of an underpinning suite of products and services that complement its existing responsible investment strategy. Zurich recently signed-up to the United Nations global compact business ambition for 1.5°C pledge limiting average global temperature increases to 1.5°C. The implementation of this will further reduce the Group’s exposure to transition risk.
Climate-related opportunities Zurich sees business opportunities both in helping its customers manage physical risk and transition risk, as well as benefiting from the changes required to move towards a low-carbon economy. As an innovative insurer, Zurich is positioned to take advantage through its climate-change-related products and services which enable existing and prospective customers to better understand and manage their exposure to climate risks and to enhance their resilience to both physical and transition risk.
Climate-related regulations aimed at incentivizing a low-carbon economy result in an increased demand for alternative low-carbon solutions and provide opportunities for new markets. The impact which is currently expected to be low in the short to medium-term, will increase over time. Zurich has considerable expertise in providing insurance solutions for green assets and takes advantage of environmentally oriented opportunities through products and services for electric vehicles, renewable energy, etc., around the world. For example, electric vehicles (EV) are expected to be a significant and growing segment in the new vehicle market with Zurich leading the way in developing customized motor insurance solutions that meet the needs of EV customers.
Metrics Key performance indicators (KPIs) for sustainability focus areas were defined to ensure continuous improvement in performance on responsible business practices. The metrics in place are designed to track the mitigation of operational and investment related risks. Latest data for these metrics, along with historical data to facilitate trend analysis, can be found on the webpage.
Digital transformation and technological advances have not only created a wide spectrum of benefits for society but also amplified risks that need to be understood and managed. Assessing cyber risk, information and data security risk, risks arising from emerging technologies and innovation in the digital space remain a key focus in determining the Group’s exposure to risks resulting from digital transformation. Based on a dedicated framework, these assessments support delivering assurance, risk insights and oversight, and make use of enhanced capabilities to ensure the Group’s resilience.
Holistic and interdisciplinary approach By applying a holistic approach to assessing digital trends, the Group provides new risk insights that enable Zurich to achieve a rapid and resilient digital transformation. In order to ensure effective governance and monitoring, on-going proactive, pragmatic and solution-oriented approaches focus on risk and controls with a strong emphasis on enabling the business while safeguarding the enterprise from risks in the digital space.
Cyber and technology risk The relevance of technological risks such as cyber risk is rapidly increasing across all data-driven industries. Exposure to these risks has grown in lockstep with the significant rise in digital services provided directly to customers and the increasing prevalence of digital ecosystems and cloud solutions in today’s interconnected world. On a continuous basis, Zurich assesses and monitors exposure to defined information security and cyber risk scenarios through key risk indicators (KRIs) to effectively focus on actions and adequate resource allocation.
Data risk The strategic relevance of data as a business asset is rising at a rapid pace and the risks associated with data management are growing more and more prominent. Preventing risks such as data losses and privacy breaches, and assessing and monitoring the potential misuse of data and losses triggered by failures in data management remain in focus. Specifically, appropriate governance of data for business purposes and decision-making processes, including automation, machinelearning techniques and other advanced technologies are a priority. As Zurich strives to inspire confidence in a digital society with its data commitment, assurance on the ethical use of advanced technologies is provided from a risk management perspective for the protection and privacy of data of our customers and all other stakeholders.
Digital policy – new insights and sustainability Internal policies for managing digital risk are aligned to Zurich’s sustainability strategy and are implemented by the businesses. Zurich’s aspires to not only follow but also influence the public policy discourse on digital transformation and innovation risks. Zurich takes an active role in thought leadership in digital risk management across the industry and is committed to strengthening the link between digitization and sustainability, supporting digital literacy to enable effective risk management and it is endorsing the trustworthy use of advanced technologies to make sure the Group’s values are adhered to and observed.
The results show the Group making further strong progress. All 2017 to 2019 targets were exceeded, with all business units contributing. Together with our customer-focused strategy, a simplified operating model and strong balance sheet, these results position us well for the future.” George Quinn Group Chief Financial Officer
FY 2019 1 Business operating profit after tax return on equity, excluding unrealized gains and losses.
Catastrophes Expense ratio Accident year loss ratio excluding catastrophes Prior year development
Catastrophes CR excluding catastrophes 3 Provided for informational purposes only. Zurich Insurance Group has no ownership interest in the Farmers Exchanges. Farmers Group, Inc., a wholly owned subsidiary of the Group, provides certain non-claims services and ancillary services to the Farmers Exchanges as its attorney-in-fact and receives fees for its services.
The Group’s combined ratio improved by 1.4 percentage points over the year, continuing the trend of recent years and despite adverse development of the North American crop insurance business.
Group Functions and Operations showed an improved performance with the associated net loss reduced by 5 percent due to lower net costs associated with the Group’s headquarters.
A strong capital position and cash generation During the year, management continued to improve the Group’s focus and optimize the use of capital. The Group’s balance sheet and internal economic capital model (Z-ECM) remained very strong at an estimated 129 percent 2, above the target range.
Conversion of earnings into distributable cash was strong, with USD 3.4 billion of net cash remittances over the year bringing the total net remittances to USD 10.9 billion over the past three years, well ahead of the USD 9.5 billion set in 2016.
5 percent proposed dividend increase In line with the stated dividend policy, the board proposed a 5 percent increase in the dividend to CHF 20 per share.
Certain comparatives have been revised as a result of reclassifications and other adjustments. For details refer to note 1 of the audited consolidated financial statement.
in USD millions, for the years ended December 31 2019 2018 Change 1
Business operating profit 5,302 4,566 16% Net income attributable to shareholders 4,147 3,716 12%
P&C business operating profit 2,878 2,085 38% P&C gross written premiums and policy fees 34,184 33,505 2% P&C combined ratio 96.4% 97.8% 1.4 pts
Life business operating profit 1,486 1,554 (4%) Life gross written premiums, policy fees and insurance deposit 33,479 33,448 0% Life new business annual premium equivalent (APE) 2 4,331 4,639 (7%) Life new business margin, after tax (as % of APE) 2 25.8% 24.1% 1.8 pts Life new business value, after tax 2 976 981 (1%)
Net investment result on Group investments 3 7,391 6,288 18% Net investment return on Group investments 3,4 3.9% 3.3% 0.6 pts Total return on Group investments 3,4 8.2% 0.6% 7.6 pts
Business operating profit (BOP) for the year ended December 31, 2019 was USD 5.3 billion, up 16 percent compared with the prior period. This was driven by underlying growth across the business and a strong underwriting performance in Property & Casualty.
Net income attributable to shareholders (NIAS) increased 12 percent in the year 2019, with growth driven by the increase in business operating profit, higher realized gains, together with a reduction in the effective tax rate.
Gross written premiums and policy fees 34,184 33,505 2% Net earned premiums and policy fees 25,608 26,431 (3%) Insurance benefits and losses, net of reinsurance 16,475 17,291 5% Net underwriting result 922 574 61% Net investment result 2,171 1,884 15% Business operating profit 2,878 2,085 38% Loss ratio 64.3% 65.4% 1.1 pts Expense ratio 32.1% 32.4% 0.3 pts Combined ratio 96.4% 97.8% 1.4 pts
Property & Casualty gross written premiums returned to growth in 2019, increasing 2 percent on a reported basis in U.S. dollars terms and 6 percent on a like-for-like basis, after adjusting for closed acquisitions and disposals and currency movements. Underlying growth was achieved in all regions.
Net earned premiums for the year decreased 3 percent in U.S. dollars and increased 1 percent on a like-for-like basis, with growth impacted by the earn-through of reductions in gross written premiums in the prior year and changes in reinsurance programs.
Business operating profit for the year ended December 31, 2019 was USD 2.9 billion, 38 percent higher than in the previous year, showing a strong performance across all regions. The strong regional performance was partly offset by higher losses in the Group Reinsurance unit.
The combined ratio improved by 1.4 percentage points to 96.4 percent in 2019, leading to a USD 348 million increase in the net underwriting result to USD 922 million.
Investment income increased by 1 percent, with growth in investment income in North America and Latin America more than offsetting a decline in Europe, Middle East & Africa (EMEA). The strong performance of financial markets in 2019 led to an increase in fair value gains on the Group’s hedge fund portfolio amounting to USD 211 million compared to a loss of USD 48 million in 2018.
P&C business operating profit (BOP) in USD millions, for the years ended December 31
In North America, the combined ratio was 96.5 percent, 1.7 percentage points below 2018, with a lower level of natural catastrophes and weather-related events in 2019 more than offsetting weaker results from the crop insurance portfolio.
Life in USD millions, for the years ended December 31 2019 2018 Change
Gross written premiums and policy fees 15,151 14,754 3% Net investment income on Group investments 2,915 3,035 (4%) Insurance benefits and losses, net of reinsurance (10,190) (9,702) (5%) Business operating profit 1,486 1,554 (4%)
Life delivered a strong underlying performance against a strong 2018 result. Business operating profit decreased 4 percent to USD 1.5 billion due to a strengthening of the U.S. dollar against a number of key currencies compared to 2018 and increased 2 percent on a like-for-like basis, after adjusting for closed acquisitions and disposals and currency movements. Net positive one-off items included within the 2019 results were also lower than in the prior year.
Asia Pacific business operating profit increased 10 percent in U.S. dollars, with a decrease of 4 percent on a like-for-like basis. The underlying reduction was driven primarily by weaker results in Australia which more than offset a gain related to the sale and lease-back of an own-use property.
Europe, Middle East & Africa (EMEA) 576 619 2,760 2,890 21.9% 22.8%
2019 Life new business annual premium equivalent (APE) decreased 7 percent in U.S. dollars and 3 percent on a like-for-like basis.
APE sales in Asia Pacific remained flat on a like-for-like basis. Growth in protection business in most countries was offset by lower sales in Japan.
New business value (NBV) increased 4 percent on a like-for-like basis and decreased 1 percent in U.S. dollars. Underlying improvements in business and country mix as well as positive operating assumptions were partially offset by adverse economic assumption updates.
Farmers Re business operating profit of USD 15 million was USD 28 million lower than in 2018. This reflects the ongoing impact of the reduction in the all-lines quota share participation, further reduced to 0.25 percent effective December 31, 2019, as well as higher natural catastrophe losses and adverse prior year development from periods with a higher quota share participation.
Farmers Life business operating profit of USD 236 million was USD 59 million higher than in the prior year. Results benefited from a combination of continued growth in the in-force portfolio, favorable experience and a positive year-over-year impact from annual assumption updates. Within this, favorable mortality experience and lower amortization of deferred acquisition costs accounted for around half of the improvement.
The Farmers Exchanges are owned by their policyholders. Farmers Group, Inc., a wholly owned subsidiary of the Group, provides certain non-claims services and ancillary services to the Farmers Exchanges as attorney-in-fact and receives fees for its services.
in USD millions, for the years ended December 31 2019 2018 Change
Gross written premiums 20,656 20,325 2% Gross earned premiums 20,441 20,171 1%
Farmers business operating profit (BOP) in USD millions, for the years ended December 31
Non-Core Businesses in USD millions, for the years ended December 31 2019 2018 Change
Group liabilities and equity Total liabilities and equity as of December 31, 2019 (in USD millions)
The Group’s balance sheet remains very strong, as demonstrated by S&P and Moody’s financial strength ratings for the Zurich Insurance Company Ltd of AA- (positive outlook) and Aa3 (stable outlook), respectively. In addition, as of December 31, 2019, the Group’s estimated Z-ECM ratio remained very strong at 129 percent, with an error margin of +/–5 percentage points.
During the year the Group saw net cash remittances of USD 3.4 billion, with total remittances over the 2017 – 2019 period of USD 10.9 billion, a level consistent with the Group’s target for remittances to exceed USD 9.5 billion over this period. The level of remittances has been driven both by core remittances from operational earnings and capital released by management actions.
Net cash remittances by business for the year ended December 31, 2019 (in USD millions)
As part of Zurich’s tax strategy, the Group strives to manage tax costs and control associated risks for the benefit of its customers, employees, shareholders and for society as a whole. The Group employs rigorous tax accounting and reporting oversight. The location of Group subsidiaries and affiliated companies is driven by business reasons and not the avoidance of tax. The Group’s consolidated result includes only a very limited number of companies located in low or nil tax rate jurisdictions and in all cases these carry out operative insurance, reinsurance and asset management activities.
Total tax contribution reflects Zurich’s economic contribution to the economy in taxes – the direct and indirect taxes paid by Zurich (‘tax borne by the shareholders’) and those taxes that Zurich is legally obliged to collect on behalf of the tax administrations (‘tax collected’): Taxes borne by Shareholders Total 2018: USD 2.1bn (all numbers based on IFRS excluding deferred income tax)
Taxes collected Total 2018: USD 6bn (all numbers based on IFRS excluding deferred income tax)
See more details on our tax strategy in our Sustainability pages at www.zurich.com.
The shareholders’ effective tax rate decreased to 23.6 percent for the period ended December 31, 2019 compared with 24.9 percent for the same period of 2018. The decrease was driven primarily by one-off tax benefits through the recalibration of net deferred tax liabilities arising from the Swiss corporate tax reform enacted in 2019, under which Swiss profits of the Group are now taxed at 21.0 percent, compared with 22.0 percent in previous years.
Doing well and doing good 2019 was an important year for our responsible investment strategy. Our allocation to impact investments increased to USD 4.6 billion, of which USD 3.6 billion was held in green, social and sustainability bonds. We also developed an innovative framework that allows us to measure the social and environmental impact of our impact investment portfolio. And Zurich has joined the UN Net-Zero Asset Owner Alliance as a founding member, committing to a zero-emission portfolio of investments by 2050. I am proud of these achievements. These are tangible steps toward Zurich’s ambition to become one of the most responsible and impactful businesses in the world.
Solid investment result Despite lower yields and volatile markets, we achieved USD 5.3 billion of net investment income (NII), 2 percent lower than in 2018 in U.S. dollar terms. Excluding currency effects, NII increased by 5 percent. We achieved this strong performance through a combination of higher business inflows, measures to preserve book yield, and by continuing to deploy our strategy to increase allocation into illiquid assets such as real estate and private debt.
Policy fees 2,469 2,447 Gross written premiums and policy fees 50,525 49,485
Net change in reserves for unearned premiums 10 (949) (224) Net earned premiums and policy fees 40,302 41,007 Farmers management fees and other related revenues 26 3,780 3,204
attributable to policyholders 17 (365) 183 attributable to shareholders 17 (1,351) (1,317) of which: Attributable to non-controlling interests (119) (139)
Consolidated statements of comprehensive income in USD millions, for the years ended December 31
Change (before reclassification, tax and foreign currency translation effects and after allocation to policyholders) (2,049) (5) (914) (2,968) 39 551 591 (2,378) Reclassification to income statement (before tax, foreign currency translation effects and allocation to policyholders) (733) (48) – (781) – – – (781) Reclassification to retained earnings – – – – (66) – (66) (66) Deferred income tax (before foreign currency translation effects) 419 11 – 431 9 (96) (87) 344 Foreign currency translation effects (65) (5) – (70) – 126 126 56
Investments for unit-linked contracts 126,211 109,294 Total investments 319,523 291,940 Reinsurers’ share of liabilities for insurance contracts 8 22,752 21,197 Deposits made under reinsurance contracts 726 883 Deferred policy acquisition costs 11 19,207 19,541 Deferred origination costs 11 400 419 Receivables and other assets 15 19,357 18,225 Deferred tax assets 17 1,151 1,125 Assets held for sale 1 5 2,087 24,124
Other intangible assets 14 4,333 4,542 Total assets 404,688 395,342 1 In 2019, the Group reclassified USD 2 billion of assets to held for sale based on agreements signed to sell business in the UK and Germany (see note 5). Net decrease in total assets held for sale by USD 22 billion relates to completion of the sale in the UK. As of December 31, 2018, the Group had USD 24 billion of assets held for sale based on agreements signed to sell business in the UK, Venezuela and Germany (see note 5).
2 The increase in property and equipment is mainly due to the establishment of a right-of-use asset upon the adoption of IFRS 16 (see note 2).
Cash flows from operating activities Net income attributable to shareholders 4,147 3,716 Adjustments for: Net (gains)/losses on divestment of businesses 295 24 (Income)/expense from equity method accounted investments (3) (1) Depreciation, amortization and impairments of fixed and intangible assets 967 898 Other non-cash items 248 128
in USD millions, for the years ended December 31 2019 2018
Other supplementary cash flow disclosures Other interest income received 4,830 4,851 Dividend income received 1,764 1,993 Other interest expense paid (907) (883) Income taxes paid (1,534) (1,598)
For the periods ended December 31, 2019 and 2018, cash and cash equivalents held to meet local regulatory requirements were USD 313 million and USD 825 million, respectively.
Balance as of December 31, 2018 as previously reported 11 1,180 649 363 (9,676) 211 37,452 30,189 1,613 31,802
Share-based payment transactions – 55 – – – – (63) (8) – (8) Treasury share transactions – – – – – – 169 169 – 169 of which: share buy-back program – – – – – – – – – – Cumulative foreign currency translation adjustment due to hyperinflation 5 – – – – 111 – – 111 8 119 Reclassification from revaluation reserves – – – – – – – – – – Total comprehensive income for the period, net of tax – – 3,336 91 (103) 13 4,106 7,442 478 7,921
Net income – – – – – – 4,147 4,147 Net unrealized gains/(losses) on available-for-sale investments – – 3,336 – – – – 3,336 Cash flow hedges – – – 91 – – – 91 Cumulative foreign currency translation adjustment – – – – (103) – – (103) Revaluation reserve – – – – – 13 – 13 Net actuarial gains/(losses) on pension plans – – – – – – (41) (41)
Share-based payment transactions – 30 – – – – (1) 29 – 29 Treasury share transactions – – – – – – (956) (957) – (957) of which: share buy-back program 2 – – – – – – (555) (555) – (555) Reclassification from revaluation reserves – – – – – – 36 36 – 36 Total comprehensive income for the period, net of tax – – (2,429) (47) (914) (17) 4,298 891 137 1,028
Zurich Insurance Group Ltd and its subsidiaries (collectively the Group) is a provider of insurance products and related services. The Group operates in Europe, Middle East & Africa (EMEA), North America, Latin America and Asia Pacific through subsidiaries, as well as branch and representative offices.
Disclosures under IFRS 4 ‘Insurance Contracts’ and IFRS 7 ‘Financial Instruments: Disclosures’ relating to the nature and extent of risks, and capital disclosures under IAS 1 ‘Presentation of Financial Statements’ have been included in the audited sections of the risk review on pages 129 to 157, and they form an integral part of the consolidated financial statements.
The Group’s consolidated balance sheets are not presented using a current/non-current classification. The following balances are generally considered to be current: cash and cash equivalents, deferred policy acquisition costs on property & casualty contracts, receivables, reserve for premium refunds and obligations to repurchase securities.
The following balances are mixed in nature (including both current and non-current portions): debt securities, mortgage loans, other loans, reinsurers’ share of liabilities for insurance contracts, deposits made under assumed reinsurance contracts, deferred origination costs, other assets, reserves and investments for unit-linked contracts, liabilities for investment contracts, deposits received under ceded reinsurance contracts, deferred front-end fees, reserves for losses and loss adjustment expenses, reserves for unearned premiums, future life policyholder benefits, policyholder contract deposits and other funds, other liabilities, senior and subordinated debt, and assets and liabilities held for sale.
Consolidated income statements and cash flows at average exchange rates 12/31/19 12/31/18 12/31/19 12/31/18
Standards, amendments and interpretations effective or early-adopted as of January 1, 2019 and relevant for the Group’s operations Table 2.1 shows new accounting standards or amendments to and interpretations of standards relevant to the Group that have been implemented for the financial year beginning January 1, 2019. The impact of applying IFRS 16 ‘Leases’ is disclosed below. The other standards/interpretation have no material impact on the Group’s financial position or performance and have been applied prospectively to transactions occurring in the current financial year.
New standards/interpretations IFRS 16 Leases January 1, 2019 IFRIC 23 Uncertainty over Income Tax Treatments January 1, 2019 Amended standards IAS 19 Plan Amendment, Curtailment or Settlement January 1, 2019 IAS 28 Long-term Interests in Associates and Joint Ventures January 1, 2019
The Group adopted IFRS 16 on January 1, 2019. As permitted by the transitional provisions of IFRS 16, the Group elected to apply the modified retrospective approach and has not restated comparative figures. The adoption of IFRS 16 resulted in an increase in total assets of USD 1.4 billion and total liabilities of USD 1.5 billion. The cumulative effect of USD 130 million net of tax resulting from the measurement of the right-of-use assets on a retrospective basis was recognized as a decrease in opening retained earnings. For leases previously classified as a finance lease, the carrying amounts were not adjusted on transition to IFRS 16.
The Group applied the following practical expedients permitted on transition to IFRS 16 where the Group acts as a lessee in a lease previously classified as an operating lease: 33 No reassessment whether a contract is, or contains, a lease; 33 Reliance on previous assessments on whether a lease contract is onerous; 33 Scope exemption for operating leases with a remaining lease term of less than 12 months as at January 1, 2019; 33 Exclusion of initial direct costs for the measurement of the right-of-use asset; 33 Use of hindsight in assessing whether the Group is reasonably certain to exercise an option to extend or terminate a lease.
The Table 2.2 reconciles the operating lease obligations as of December 31, 2018 to the opening lease liabilities recognized as of January 1, 2019: Zurich Insurance Group Annual Report 2019 190
Discounted operating lease commitments applying IAS 17 1 1,807 Transition differences resulting from: (188)
Lease extension options 54 Software licenses (65) Non-lease components (124) Short-term/Low-value (40) Other (13)
Lease liabilities 1,619 1 Applied weighted average incremental borrowing rate as of January 1, 2019 amounted to 2.8%.
Right-of-use assets are presented in ‘Property and equipment’ and lease liabilities in ‘Other liabilities.’ Finance lease receivables are included in ‘Other loans.’ Depreciation expense for right-of-use assets amounted to USD 204 million and is disclosed in note 12 within ‘Building and infrastructure costs.’ Interest expense on lease liabilities included in ‘Interest credited to policyholders and other interest’ amounted to USD 44 million. The impact resulting from the change in accounting policy on the Group’s consolidated balance sheet as of January 1, 2019 is summarized in Table 2.3.
IFRS 16: The impact of change in accounting policy in USD millions, as of January 1 2019
Accounting policies applied for IFRS 16 are disclosed in note 3 paragraph k).
Standards, amendments and interpretations issued that are not yet effective or adopted by the Group Table 2.4 shows new accounting standards or amendments to and interpretations of standards relevant to the Group, which are not yet effective or adopted by the Group.
New standards/interpretations IFRS 9 Financial Instruments January 1, 2021 IFRS 17 Insurance Contracts January 1, 2021 Amended standards IFRS 3 Definition of a Business January 1, 2020 IAS 1/IAS 8 Definition of Material January 1, 2020 IFRS 9 Prepayment Features with Negative Compensation January 1, 2021
A dedicated methodology work stream covers group accounting policies, actuarial methodologies and disclosure requirements to be consistently implemented throughout the Group. This work stream further contributes to the industry wide discussions on standard interpretation and its operational effects and closely monitors the developments in the IASB Transition Resource Group for IFRS 17 to evaluate the effects and align the accounting policies and actuarial methodologies accordingly. The implementation work stream drives the analysis of processes, data and systems implications which have revealed implementation challenges. In 2019, considerable progress was made in finalizing the core development of the target solution landscape at Group and local levels which concluded with the successful completion of dry-run simulations. In 2020, the focus of the Program will be on finalizing the implementation efforts, analyzing the effects from IFRS 17 on the consolidated financial statements and education of key stakeholders.
c) Insurance contracts and investment contracts with discretionary participating features (DPF) Classification Contracts issued that transfer significant insurance risk to the Group and obligations arising from investment contracts with DPF are accounted for as insurance contracts.
Certain insurance contracts and investment contracts with DPF offered by the Group contain benefit features for which the amount and timing of declaration and payment are at the discretion of the Group. Where that discretion has not been exercised, the total amount expected to be allocated to policyholders as required by local insurance regulation or contractual provisions is included in the policyholder other funds.
For products managed on a dynamic basis, an option in IFRS 4 is used to measure insurance liabilities using current financial and non-financial assumptions to better reflect the way that these products are managed. Financial assets related to these liabilities are designated at fair value through profit or loss.
Deferred acquisition costs (DAC) Costs that vary with and are directly related to the acquisition of new and renewal business, including for example commissions and certain underwriting and policy issue expenses, are deferred and subsequently amortized over a defined period. Such costs are presented on balance sheet net of commissions paid to reinsurers in respect of business ceded.
DAC for investment type insurance contracts such as universal life, unit-linked and unitized with-profits contracts is amortized based on estimated gross profits expected to be realized over the life of the contract. Estimated gross profits are updated for actual and anticipated future experience and discounted using either the interest rate in effect at the inception of the contracts or the latest revised interest rate for the remaining benefit period, depending on whether crediting is based on the policyholder’s or on the reporting entity’s investment performance. Resulting deviations are reflected in income.
Liability adequacy tests Liability adequacy tests are performed annually for groupings of contracts determined in accordance with the Group’s manner of acquiring, servicing and measuring the profitability of its insurance contracts.
Impairment of financial assets The Group assesses at each reporting date whether there is objective evidence that loss events have occurred that negatively affect the estimated future cash flows of a financial asset or a group of financial assets. The evaluation of whether a financial asset is impaired requires significant judgment (see note 4).
The services provided by FGI under such contracts are non-claims services including risk selection, preparation and mailing of policy documents and invoices, premium collection, management of the investment portfolios and certain other administrative functions. The multiple performance obligations covered by the consideration received are considered to be a series with the same pattern of transfer, therefore, the performance obligations are not separated. The revenue for the services provided includes Farmers management fee, membership fees and revenues for ancillary services. Farmers management fees are determined as a percentage of gross premiums earned by the Farmers Exchanges and recognized ratably over the period the services are provided. Membership fees are one-time fees charged at the time of the policy issuance that do not cover a distinct performance obligation. Such fees are recognized as revenue over the expected life of the customer relationship. The incremental costs incurred in connection with the customer setup activity are recognized as an asset and subsequently amortized using the same pattern as the related revenue. The revenue for ancillary services includes remuneration for services provided that are not covered by Farmers management fees where FGI acts as a principal. Typically, these services are provided over time, so that the revenue is also recognized over time. Refer to note 26 for further information.
Distribution agreements Distribution agreements may have useful lives extending up to 30 years, estimated based on the period of time over which they are expected to provide economic benefits, but for no longer than the contractual term, after taking into account all economic and legal factors such as stability of the industry, competitive position and the period of control over the assets.
Software Costs associated with research and maintenance of internally-developed computer software are expensed as incurred. Costs incurred during the development phase are capitalized. Software under development is tested for impairment annually.
The right-of-use asset is depreciated over the shorter of the leased asset’s useful life or the lease term on a straight-line basis. The right-of-use asset is included in ‘Property and equipment’ and disclosed separately in note 13. The carrying amount of the lease liability is increased to reflect the unwinding of the discount so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period and is reduced by the lease payments made during the period. Lease payments include fixed payments and variable payments that depend on a non-leveraged index or a rate. Lease liabilities are included within ‘Other Liabilities.’
When acting as a lessor of investment property in an operating lease, the Group follows the accounting policy in paragraph e).
a) Reserves for insurance contracts and deferred acquisition costs Property & Casualty The Group is required to establish reserves for payment of losses and loss adjustment expenses that arise from the Group’s property & casualty products. These reserves represent the expected ultimate cost to settle claims occurring prior to, but still outstanding as of, the balance sheet date. The Group establishes its reserves by product line, type and extent of coverage and year of occurrence. There are two categories of loss reserve: reserves for reported losses and reserves for incurred but not reported (IBNR) losses. Additionally, reserves are held for loss adjustment expenses, which contain the estimated legal and other expenses expected to be incurred to finalize the settlement of the losses.
33 Assumptions are determined with reference to current and historical customer data, as well as industry data. Interest rate assumptions reflect expected earnings on the assets supporting the future policyholder benefits. The information used by the Group’s qualified actuaries in setting such assumptions includes, but is not limited to, pricing assumptions, available experience studies and profitability analysis.
b) Fair value measurement In determining the fair values of investments in debt and equity instruments traded on exchanges and in over-thecounter (OTC) markets, the Group makes extensive use of independent, reliable and reputable third-party pricing providers and only in rare cases places reliance on valuations that are derived from internal models.
Sensitivity tests have been performed on goodwill and AIF contracts that typically comprise of an analysis for either a decrease in cash flows of up to 30 percent, a decrease in the perpetual growth rate of up to 1.0 percentage point or an increase in the discount rate of up to 3.5 percentage points, so as to capture potential future variations in market conditions. The recoverability of the Latin America Property & Casualty CGU goodwill is very sensitive to key assumptions such as macroeconomic conditions, industry and market growth considerations, and cost factors in particular in Brazil and Mexico.
Acquisitions OnePath On December 11, 2017, the Group announced that it had entered into an agreement to acquire 100 percent of the Australian life and consumer credit insurance business (OnePath Life and OnePath General Insurance, hereafter OnePath) of Australia and New Zealand Banking Group Limited (ANZ). In order to gain early exposure to a portion of OnePath’s earnings, the Group entered into a quota share agreement to reinsure the existing death, disability and critical illness business of OnePath as of May 1, 2018 for an upfront commission payment of USD 754 million. On May 31, 2019, the Group completed its acquisition of OnePath for USD 1.4 billion, subject to purchase price adjustments. As part of the transaction, Zurich will enter into a 20-year strategic alliance agreement with ANZ in Australia to distribute life insurance products through its bank channels.
Divestments Held for sale On November 19, 2019, Zurich Financial Services (UKISA) Limited and Allied Zurich Holdings Limited (AZH) entered into an agreement with Embark Group Limited (Embark) to sell the UK Retail Wealth business, which includes an Investment and Retail Wealth Platform business, Sterling ISA Managers Limited (SIML), and an Investment Management business, Zurich Investment Services (UK) Limited (ZISUK). The sale is expected to be completed in Q2 2020, subject to regulatory approval. The Group has recorded a pre-tax loss of USD 123 million in the statement of income, including an impairment of assets of USD 209 million. As of December 31, 2019, assets and liabilities reclassified to held for sale were USD 57 million and USD 7 million, respectively.
On September 15, 2019, Zurich Insurance plc entered into an agreement to transfer the German Architects & Engineers portfolio to Darag Group. As of December 31, 2019, assets reclassified to held for sale were USD 177 million and liabilities reclassified to held for sale were USD 177 million.
As of December 31, 2019, due to the completion of the sale of the UK workplace pensions and savings business by Zurich Assurance Ltd in the UK (see note below), the total assets and liabilities reclassified to held for sale decreased by USD 22 billion and USD 23.5 billion, to USD 2.1 billion and USD 2 billion, respectively.
ADAC Autoversicherung AG and Bonnfinanz AG On January 1, 2019, the Group completed the sale of its 51 percent participation in ADAC Autoversicherung AG and on April 2, 2019, the Group completed the sale of Bonnfinanz AG, with pre-tax gains of USD 19 million and USD 39 million, respectively, recorded within net gains/(losses) on divestment of businesses.
Acquisitions Blue Insurance On October 3, 2018, Cover-More Australia Pty Ltd, a fully owned subsidiary of Zurich Insurance Company Ltd, completed the acquisition of Blue Insurance Ltd (Blue Insurance), an Irish-domiciled insurance intermediary acquired for approximately USD 64 million, subject to performance adjustments. Based on purchase price accounting, goodwill amounted to USD 37 million, including a USD 2 million increase in goodwill from post-acquisition adjustments in 2019.
QBE Latin America balance sheet as of the acquisition dates in USD millions Total
Liabilities for insurance contracts 736 Other liabilities 142 Deferred tax liabilities 8 Liabilities acquired 886
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. Net investment result on Group investments includes returns on investment-related cash, which is included in cash and cash equivalents on the consolidated balance sheets.
Investments in associates and joint ventures 3 1 (1) – 1 2 – –
Investment result, gross, on Group investments 5,542 5,606 2,093 901 7,635 6,507 (216) (238) Investment expenses on Group investments (244) (219) – – (244) (219) – – Investment result, net, on Group investments 5,298 5,387 2,093 901 7,391 6,288 (216) (238)
Details of Group investments by category as of December 31 2019 2018
Equity securities: Fair value through profit or loss 4,391 2.3 3,633 2.0
Investments in associates and joint ventures 39 0.0 36 0.0 1 2019 Group investments include equity securities, debt securities and other loans related to the OnePath acquisition (see note 5).
Investments with a carrying value of USD 6.2 billion are held to meet local regulatory requirements in each of the years ended December 31, 2019 and 2018.
Debt securities: Mortgage and assetbacked securities: The analysis in table 6.4 is provided by contractual maturity. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.
Gross unrealized gains/(losses) on Group investments 15,103 6,868 Less amount of unrealized gains/(losses) on investments attributable to: Life policyholder dividends and other policyholder liabilities (8,574) (4,857) Life deferred acquisition costs and present value of future profits (914) (490) Deferred income taxes (1,085) (476) Non-controlling interests (91) (33)
Securities lending, repurchase and reverse repurchase agreements in USD millions, as of December 31 2019 2018
2 The Group had the right to sell or repledge, in the absence of default by its counterparties, securities received as collateral with a fair value of USD 126 million and USD 629 million as of December 31, 2019 and 2018, respectively.
3 The Group’s counterparties had the right to sell or repledge, in the absence of default, assets pledged as collateral with a fair value of USD 350 million and USD 609 million as of December 31, 2019 and 2018, respectively. The majority of these assets were debt securities.
4 The Group had the right to sell or repledge, in the absence of default by its counterparties, securities received as collateral with a fair value of nil as of December 31, 2019 and 2018, respectively.
Gains/(losses) arising from fair value hedges in USD millions, for the years ended December 31 2019 2018
As of December 31, 2019, there were no debt issuances designated as hedged items in a cash flow hedge relationship (see note 18).
The net change of gains/(losses) deferred in OCI on derivative financial instruments designated as cash flow hedges were USD 196 million and USD (3) million before tax for the years ended December 31, 2019 and 2018, respectively.
The Group recognized gains of USD 33 million and USD 34 million in the consolidated income statement within net investment income on Group investments for the years ended December 31, 2019 and 2018, respectively. The Group also recognized net gains/(losses) of USD 4 million and USD 5 million within administrative and other operating expense for the years ended December 31, 2019 and 2018, respectively, as an offset to the foreign currency revaluation on the underlying hedged items.
Measurement of hedge effectiveness is based on changes in forward rates. Gains and losses on the designated hedging derivative and non-derivative financial instruments related to the effective portion of the hedge are recognized in OCI together with the translation gains and losses on the hedged net investment. The accumulated gains and losses in OCI are reclassified to income on disposal or partial disposal of the foreign operation.
The net change of gains/(losses) deferred in OCI were USD (40) million and USD (114) million before tax for the years ended December 31, 2019 and 2018, respectively as a result of a hedge relationship by foreign exchange forwards and swaps.
The Group has also designated certain debt issuances as hedging instruments on a non-derivative net investment hedge relationship. The notional amount of these financial instruments was USD 8.1 billion and USD 7.5 billion for the years ended December 31, 2019 and 2018, respectively. The net gains/(losses) deferred in OCI were USD 242 million and USD 148 million before tax for the years ended December 31, 2019 and 2018, respectively.
Related amounts not offset (99) (169) 100 168 Cash collateral (received)/pledged (1,089) (666) 116 90 Non-cash collateral (received)/pledged (29) (26) 54 60
Liabilities for insurance contracts in USD millions, as of December 31 Gross Ceded Net
Reserves for losses and loss adjustment expenses 59,165 60,913 (12,137) (11,535) 47,028 49,378
Total liabilities for insurance contracts 1,2 264,140 249,208 (22,813) (21,273) 241,327 227,936 1 Includes USD 2.2 billion Gross liabilities for insurance contracts from the OnePath acquisition (see note 5). 2 Total liabilities for insurance contracts ceded are gross of allowances for uncollectible amounts of USD 61 million and USD 76 million as of December 31, 2019 and 2018, respectively.
For the year ended December 31, 2019, the decrease of USD 2.3 billion in net reserves for losses and loss adjustment expenses is mainly driven by a decrease in North America Commercial due to higher reinsurance cessions in Property, as well as the disposal of U.S. asbestos and environmental liability insurance portfolios.
Net favorable reserve development emerged from reserves established in prior years amounting to USD 583 million mainly related to the following: 33 In EMEA, favorable prior year development of USD 423 million driven by motor and liability in retail segment; 33 In North America, favorable prior year development of USD 174 million driven by workers’ injury in retail and commercial segments.
Development of insurance losses, net in USD millions, as of December 31 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Initial net reserves for losses and loss adjustment expenses 56,180 55,341 57,385 57,319 54,703 53,739 52,458 55,623 50,627 48,223
Cumulative paid as of: Seven years later (38,192) (37,625) (37,108) Eight years later (39,568) (38,838) Nine years later (40,562)
Net undiscounted reserves re-estimated 1: Seven years later 54,073 54,229 55,834 Eight years later 53,992 53,765 Nine years later 53,676
Future life policyholder benefits are generally calculated by a net premium valuation. In terms of U.S. dollars, the weighted average discount rate used in the calculation of future life policyholder benefits is 2.3 percent and 2.4 percent as of December 31, 2019 and 2018, respectively.
Policyholder contract deposits and other funds gross in USD millions, as of December 31 2019 2018
Increase/(decrease) recorded in other comprehensive income 2,328 (1,125) – – 2,328 (1,125)
Expected maturity profile for reserves for insurance contracts, net of reinsurance – current period in USD millions, as of December 31, 2019 Reserves for losses and loss adjustment expenses
Expected maturity profile for reserves for insurance contracts, net of reinsurance – prior period in USD millions, as of December 31, 2018 Reserves for losses and loss adjustment expenses
Tables 9.3a and 9.3b provide an analysis of investment contract liabilities according to maturity, based on expected cash flows as of December 31, 2019 and 2018. The undiscounted contractual cash flows for investment contract liabilities are USD 62 billion and USD 51 billion as of December 31, 2019 and 2018, respectively. Liabilities for unit-linked investment contracts amounted to USD 49 billion and USD 41 billion as of December 31, 2019 and 2018, respectively. Policyholders of unit-linked investment contracts can generally surrender their contracts at any time, leading the underlying assets to be liquidated, risks arising from liquidation of unit-linked assets are borne by the policyholders. Certain non-unit-linked contracts also allow for surrender of the contract by the policyholder at any time. Liabilities for such contracts amounted to USD 417 million and USD 463 million as of December 31, 2019 and 2018, respectively. The Group actively manages the Life in-force business to improve persistency and retention.
Policyholder dividends and participation in profits in USD millions, for the years ended December 31 2019 2018
Amortization (charged)/ credited to other comprehensive income – – (367) 136 (46) 29 (413) 166 1 Net of eliminations from inter-segment transactions.
2 In May 2018, the Group entered into a quota share reinsurance agreement with OnePath and made an upfront commission payment of USD 754 million. 3 Impairment related to UK held for sale transaction (see note 5).
USD 4 million is related to the acquisition of OnePath and the other businesses movement of USD 12 million is mainly related to the portfolio transfer in Farmers. The 2018 Property & Casualty movement mainly related to QBE acquisition and sale of Endsleigh Limited (see note 5). The 2018 other businesses movement mainly related to the sale of a portfolio in Singapore.
As of January 1 419 460 Origination costs deferred 53 55
Expenses in USD millions, for the years ended December 31 2019 2018
Administrative and other operating expenses 8,020 7,761 Underwriting and policy acquisition costs, net of reinsurance 8,529 8,565 Claims handling expenses 2 2,535 2,574 Investment expenses 338 315 of which: Personnel and other related costs 6,229 6,084 Building and infrastructure costs 441 836 Brand and marketing expenses 653 332 Commissions (net of DAC) 6,588 6,422 Premium taxes (net of DAC) 514 477 Asset and other non-income taxes 86 54 IT expenses 1,909 2,054 Outsourcing and professional services 2,272 2,490 Foreign currency translation 70 (63)
1 In 2019, the Group changed the presentation of table 12 and added the underwriting commission expenses as well as the allocated loss adjustment expenses (ALAE). These modifications provide a more holistic view of expenses and allow for more clear reference to other parts of the consolidated financial statements. As a result of this presentation change, the expenses disclosed in this table increased by USD 7.7 billion in 2019 (underwriting commissions USD 6.4 billion – ALAE USD 1.3 billion) and by USD 8.0 billion in 2018 (underwriting commissions USD 6.4 billion – ALAE USD 1.5 billion).
Property and equipment – current period in USD millions Real Estate Equipment Total
Net carrying value as of December 31, 2019 449 2 1,610 2,061 517 57 574 968 1,667 2,635 Plus: accumulated depreciation/
Gross carrying value as of December 31, 2019 589 3 2,472 3,064 1,424 115 1,539 2,016 2,587 4,603 1 Current Year table reflects adoption of IFRS 16 ’Leases.’ 2 Includes the sale of owned real estate in Australia of USD 87 million.
Net carrying value as of December 31, 2018 155 309 147 96 331 1,037
Gross carrying value as of December 31, 2018 155 473 370 330 732 2,060 1 Prior year table does not reflect adoption of IFRS 16 ’Leases.’ 2 Includes USD 25 million related to the sale of business in the UK (Endsleigh) (see note 5).
Lessee – lease expenses and income in USD millions, for the years ended December 31 2019
Interest expense on lease liabilities 2 44 Short-term lease expenses 16 Low-value asset lease expenses 24
Lease income Income from subleasing ROUA 32 Gains arising from sale and leaseback transactions 3 53 1 Total cash outflow for leases as of December 31, 2019 was USD 280 million, excluding USD 1.6 billion future cash outflows due to extension & termination options. 2 Included within ’Interest credited to policyholders and other interest.’ 3 On October 23, 2019 a contract was signed between Zurich Australian Property Holdings Pty Ltd (ZAPH) and an Australian entity – Mount St Pty Ltd, for the sale of the
Maturity schedule – finance lease receivable in USD millions, as of December 31 2019
Maturity schedule – operating lease payments to be received in USD millions, as of December 31 Undiscounted cash flows
Gross carrying value as of January 1, 2019 1,025 2,938 2,539 4,304 4,845 309 15,960 Less: accumulated amortization/
Amortization charged to other comprehensive income – – (24) – – – (24)
As of December 31, 2019, intangible assets related to non-controlling interests were USD 54 million for present value of future profits (PVFP) of acquired insurance contracts, USD 967 million for distribution agreements, USD 10 million for software, USD 8 million for goodwill and USD 4 million for other intangible assets.
As a result of the acquisition of OnePath, intangible assets increased by USD 991 million, of which USD 936 million is goodwill, USD 55 million is distribution agreements and other intangible assets. The acquisition of QBE Colombia increased goodwill by USD 23 million (see note 5). As a result of an acquisition in Slovenia, intangible assets increased by USD 21 million, of which USD 11 million is goodwill and USD 9 million is software. A small acquisition in Germany increased intangible assets by USD 7 million.
Intangible assets by business – current period in USD millions, as of December 31, 2019
Intangible assets – prior period in USD millions Attorneyin -fact contracts Goodwill PVFP
Amortization charged to other comprehensive income – – 22 – – – 22
Intangible assets by business – prior period in USD millions, as of December 31, 2018
Financial assets Group derivative assets 1,226 899 Unit-linked derivative assets 3 3 Receivables from policyholders 3,434 3,281 Receivables from insurance companies, agents and intermediaries 4,999 5,514 Receivables arising from ceded reinsurance 1,465 1,114 Reverse repurchase agreements 56 47 Amounts due from investment brokers 857 972 Other receivables 2,412 2,426 Allowance for impairments 1 (263) (243) Accrued premiums 895 849 Accrued investment income 2 1,550 1,601 Assets for defined benefit plans 3 316 232 Other financial assets 231 144 Non-financial assets Current income tax receivables 859 634 Prepaid expenses 437 391 Other non-financial assets 880 361 Total receivables and other assets 19,357 18,225 1 Includes receivables arising from ceded reinsurance of USD 58 million and USD 38 million as of December 31, 2019 and 2018, respectively. 2 Accrued investment income on the unit-linked investments amounts to USD 79 million and USD 102 million as of December 31, 2019 and 2018, respectively. 3 See note 20.
Other liabilities in USD millions, as of December 31 2019 2018
Other financial liabilities Group derivative liabilities 365 325 Unit-linked derivative liabilities 2 12 Amounts due to agents & intermediaries 844 870 Liabilities for cash collateral received for securities lending 56 47 Amounts due to investment brokers 1,444 987 Bank deposits 1 1 Collateralized bank financing for structured lease vehicles 287 436 Liabilities for defined benefit plans 1 2,519 2,491 Other liabilities for employee benefit plans 118 129
Accrued liabilities 2,194 2,067 Other financial liabilities 2 5,184 5,235 Other non-financial liabilities Current income tax payables 661 601 Restructuring provisions 106 258 Other non-financial liabilities 868 824 Total other liabilities 16,567 14,321 1 See note 20.
Table 16.2 shows the maturity schedule of other financial liabilities excluding liabilities for defined benefit plans and lease liabilities as of December 31, 2019 and 2018. The allocation to the time bands is based on the expected maturity date for the carrying value and the earliest contractual maturity for the undiscounted cash flows.
Maturity schedule – other financial liabilities in USD millions, as of December 31 2019 2018
Maturity schedule – lease liabilities in USD millions, as of December 31 2019
During the year ended December 31, 2019 the Group incurred total restructuring costs of USD 160 million, of which USD 110 million is due to net increases in restructuring provisions, affecting mainly Property & Casualty in Europe, Middle East & Africa (EMEA) and North America.
Net income before income taxes 6,100 5,110 less: income tax (expense)/benefit attributable to policyholders (365) 183 Net income before income taxes attributable to shareholders 5,735 5,293 Expected income tax expense attributable to shareholders computed at the Swiss statutory tax rate 21.0% 1,204 22.0% 1,165 Increase/(reduction) in taxes resulting from: Tax rate differential in foreign jurisdictions (111) (27) Tax exempt and lower taxed income (123) (106) Non-deductible expenses 138 152 Tax losses not recognized 206 98 Prior year adjustments and other 36 34
Gross deferred tax Deferred acquisition and origination costs 71 (514) 52 (658) Depreciable and amortizable assets 208 (141) 27 (86) Life policyholders’ benefits and deposits 1 5 (8) 4 (1) Unrealized (gains)/losses on available-for-sale investments and cash flow hedges 8 (4) 109 (49) Accruals and deferred income 26 (25) 92 (16) Reserves for losses and loss adjustment expenses 297 (14) 295 (116) Reserves for unearned premiums 554 – 722 (66) Deferred front-end fees 5 – – – Pensions and other employee benefits 481 (56) 537 (72)
Tax loss carryforwards 432 – 131 – Gross deferred tax assets/(liabilities) before valuation allowance 5,152 (9,329) 4,149 (7,976) Valuation allowance (357) – (89) – Gross deferred tax assets/(liabilities) after valuation allowance 4,796 (9,329) 4,061 (7,976) Deferred tax liabilities (4,533) (3,915)
As of December 31, 2019 and 2018, the aggregate amount of temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures, for which deferred tax liabilities have not been recognized amount to approximately USD 24 billion and USD 19 billion, respectively. In the remote likelihood that these temporary differences were to reverse simultaneously, the resulting tax liabilities would be very limited due to participation exemption rules.