• Building supporting capabilities We made progress in recruiting, developing and retaining a diverse, talented workforce. We became the first global insurer to be certified under a gender equality standard. We introduced a Swiss-style apprenticeship program in the U.S.
General Insurance’s BOP fell by 71 percent to USD 864 million, while its combined ratio deteriorated by 6.7 percentage points to 103.6 percent. The result reflects large losses and catastrophe claims, including explosions in the port of Tianjin in August, and flooding in the UK and Ireland in December. We are taking measures to reduce earnings volatility, such as re-underwriting or exiting underperforming portfolios.
In addition to efforts to strengthen regulations on business conduct and governance, we expect some of the new developments that affect our customers will become a focus for regulators, as such developments raise concerns as well as offering benefits. For
example, the use of so-called ‘Big Data’ and predictive analytics may raise concerns about privacy or discrimination. These tools, by allowing insurers to pinpoint risks, may also be seen to threaten the ‘solidarity principle’ that is inherent to traditional insurance pooling. New technologies such as the use of drones and driverless vehicles may also create challenges for insurance regulators.
Zurich achieved its highest score since joining the Dow Jones Sustainability Index (DJSI) of 83 and outperformed 99 percent of other companies in the insurance industry group. We reached over USD 1 billion in overall impact investments in 2015, an increase of 54 percent. Our flood resilience alliance extended its work with at-risk communities.
Living up to the Zurich Commitment Caring for our customers, employees, shareholders and the communities in which we live and work. Corporate responsibility is an integral part of this.
Our 2014 – 2016 strategy aims to generate sustainable, profitable growth in a changing and competitive environment. We are prioritizing investment in our businesses in high-potential markets where we have strong competitive positions, managing other businesses for value and taking measures to grow our operating earnings.
One of our strategic priorities is to expand our commercial lines capabilities. As part of this approach, we announced in December that we plan to acquire Rural Community Insurance Services (RCIS), a U.S. agricultural insurance provider that insures one in six farmers in the U.S. With a network of over 4,000 agents, RCIS conducts business in all
Using a ‘PERC’ approach to reduce risk Together with two other members of our alliance, the International Institute for Applied Systems Analysis (IIASA) and the Wharton Business School’s Risk Management and Decision Processes Center (Wharton), we have developed processes and tools that can be applied to increase flood resilience at the community level, including a flood resilience measurement framework.
In December 2015, our long term CEO, Martin Senn, decided to step down by mutual agreement with the Board and I have taken over as Chief Executive Officer ad interim. In January 2016, we appointed Mario Greco Chief Executive Officer, effective March 7, 2016. During my time as Chairman of the Board and CEO ad interim, Fred Kindle, Vice-Chairman of the Board, has taken on certain additional responsibilities to ensure continued good governance.
The Corporate governance report describes the structures, rules and processes that are in place to provide effective governance by Zurich’s Board of Directors (the Board) and Management. It also reports on the work of the Board and its committees.
• Global Life pursues a strategy with market-leading propositions in unit-linked and protection products as well as fee-based solutions managed through three global pillars (Bank Distribution, Corporate Life & Pensions and Other Retail) to develop leading positions in its target markets.
The Global Life segment is managed based on its global pillars and on the four regions North America, Europe, Middle East & Africa (GL EMEA), Latin America and Asia Pacific (GL APAC). The new Global Life region EMEA was established as of January 1, 2015, and includes the former Global Life Europe business units, Global Life Middle East, the Zurich International Life business (ZIL) on the Isle of Man, as well as the Zurich EuroLife Luxembourg (ZEL) business. The newly formed Global Life Asia Pacific (GL APAC) region includes the following business units: Australia, Hong Kong, Indonesia, Japan, Malaysia, Singapore and Taiwan. This new structure aligns the Global Life and General Insurance segments more closely.
Changes to share capital during 2014 During 2014, a total of 733,614 shares were issued to employees out of contingent capital. As a result, on December 31, 2014, the share capital amounted to CHF 14,963,683.60 (149,636,836 shares) and both the authorized share capital and the contingent share capital (as specified in Article 5bis(1) and in Article 5ter(1a) of the Articles of Incorporation, respectively) amounted to CHF 1,000,000 (10,000,000 shares) and the other contingent share capital (as specified in Article 5ter(2a) of the Articles of Incorporation) amounted to CHF 165,842.30 (1,658,423 shares).
The current composition as of December 31, 2015 in terms of length of tenure and gender representation is as follows: Board by length of tenure as of December 31, 2015
External appointments In his capacity as a partner of Clayton, Dubilier & Rice, Mr. Kindle has served as chairman of Exova Plc, UK since 2008, and was chairman of BCA Group from 2010 until April 2015. He has been on the board of VZ Holding Ltd, Zurich, since 2002 and was elected chairman in 2014. He has been serving on the board of privately-held Stadler Rail AG since 2008.
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 by 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 2015, committee meetings lasted two hours on average.
Self-assessment A self-assessment of the full Board and its committees is carried out once a year. In 2015, the self-assessment was carried out on the basis of a comprehensive questionnaire. It considered the following key aspects of the effectiveness of the Board and its committees: a) the Board and committee environment (culture and composition, skill set and definition and delineation of tasks); b) the work of the Board and its committees (strategy, risk and control, and performance management); and c) the use of time and process (planning and allocation). A detailed report identifying key strengths and challenges was produced for, and considered by the Board. A respective action plan decided by the Board is currently being implemented.
Activities 2015: During 2015, in particular the following topics were discussed: • the performance of the Group, the segments and the GEC as well as the approval of STIP award level and LTIP vesting level in 2015 including the approval of the total variable remuneration pool for 2014; • the regulatory environment regarding remuneration and its implications on Zurich as well as external developments; • the Ordinance AEC with respect to the implementation of its requirements, in particular on the amounts of total remuneration for the Board and the GEC presented to the vote of the shareholders at the AGM on April 1, 2015, including the results thereof,
Mike Foley CEO North America Commercial and Regional Chairman of North America
To the extent not reserved to the Board, management is delegated to the CEO. The CEO, and under his supervision the Group Executive Committee (GEC), are responsible for dealing with strategic, financial and business policy issues of Group-wide relevance, including consolidated performance, capital allocation and mergers and acquisitions.
The GEC is headed by the CEO. As of December 31, 2015, members of the GEC included the Chief Financial Officer, the Chief Investment Officer, the Chief Operations and Technology Officer, the Chief Risk Officer, the Group General Counsel and the Chief Human Resources Officer; and in order to reflect both lines of business and geography, the CEOs of the business segments General Insurance, Global Life and Farmers, as well as the CEO of North America Commercial are also members of the GEC. Members of the GEC also act as the Regional Chairmen of North America, Latin America and Asia-Pacific, as well as Europe, Middle East and Africa.
The Group Pension Committee, chaired by the CEO Global Life, is responsible for developing, reviewing and advising on the Group governance framework for matters relating to retirement benefit arrangements and post-employment benefits, including the relevant policies and processes. It provides oversight and guidance over the Group’s retirement benefit arrangements and post-retirement benefits for benefit design, funding, investment and accounting purposes and provides recommendations to the Finance Committee in terms of material pension-related matters.
Educational background Mr. Foley graduated with a Bachelor of Science from Fairfield University, in Fairfield, Connecticut in 1984 and a master’s degree from the J.L. Kellogg Graduate School of Management at Northwestern University, Evanston, in 1989.
External appointments Since 2009, Mr. Hausmann has been a member of the legal committee of the Swiss-American Chamber of Commerce. In 2011, he joined the board of trustees of the foundation supporting the Museum Haus Konstruktiv in Zurich. In May 2013, Mr. Hausmann became a member of the board of the Europe Institute of the University of Zurich. In 2015, he was appointed as an adviser to The American Law Institute. He also joined the Insurance Regulatory Committee of the Institute of International Finance as well as the executive board of economiesuisse.
Skills and experience Kristof Terryn began his career in 1993 in the banking industry, where he worked in capital markets. In 1997, he joined McKinsey & Company where he held various positions within the financial services practice in Brussels and Chicago. He joined Zurich in 2004 as Head of Planning and Performance Management. In 2007, he became COO for the Global Corporate business division and in 2009 was named COO for General Insurance. Mr. Terryn became a member of the Group Executive Committee in 2010 upon his appointment as Group Head of Operations. In August 2013 he was appointed CEO Global Life and remains in that role ad interim after being appointed CEO General Insurance in October 2015.
Total non-audit fees 10.3 9.6 – Tax advice 1.6 1.4 – Legal advice 0.0 0.0 – Transaction consulting 0.0 0.0 – Audit-related advice, including MCEV 5.6 4.8
2 Excluding the value of target share allocations from transition arrangements. 3 Including the Chief Executive Officer.
Key financial figures in USD million, for the years ended December 31 2015 2014
• The value of the target share allocations made in 2015 on the assumption that the allocations will vest at 100 percent of the target level for performance over the three years 2015, 2016 and 2017 i.e. vesting at 100 percent of target in 2018.
Review of existing employment contracts of members of the GEC and any relevant adjustments made.
Share dilution Zurich meets the share obligations arising from compensation plans either by issuing new shares from the contingent capital that has been authorized by shareholders or by using Zurich shares purchased in the market. The share dilution impact is considered moderate and is in line with market practice.
3 Due to the potential volatility in any one year, the assessment of cash remittance performance can only be assessed meaningfully over a three-year period. Therefore, the cash remittance criterion will be replaced by BOPAT ROE for the vesting decisions in 2015 and 2016, using the same vesting grid that applies to NIAS ROE.
Individual performance At the beginning of the year each individual jointly with his or her line manager defines and agrees on annual objectives. The individual performance achievements are then assessed during and at the end of the year through the Group performance management process. This process utilizes a rating scale between 1 and 5, with 5 being the highest rating. There is a target distribution and payout guideline for each of the ratings. Any violations of internal or external rules or requirements by an individual are taken into account in the individual performance rating.
Dividend equivalent shares To further align plan participants with the interests of shareholders, effective from January 1, 2014 onwards, the target shares are credited dividend equivalent target shares. The number of dividend equivalent target shares takes into account the actual dividends paid to shareholders prior to vesting (vesting period). 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 dividend equivalent target shares based on the closing share price on the day prior to the dividend payment. At the vesting date, the number of target shares plus the dividend equivalent target shares will in aggregate be assessed for vesting against the performance criteria as per the LTIP vesting grid. In this way only the number of shares vesting from the target shares will be eligible for accrual of dividend equivalent target shares. Further, no dividends will accrue on the dividend equivalent target shares. The vested dividend equivalent target shares are subject to the same sales restriction periods as the vested target shares.
The committees on which the Directors serve are set out in the Corporate Governance Report on page 33. Up until December 2015, the Board consisted entirely of non-executive Directors that are independent from management. As of December 2015, Tom de Swaan was appointed as Chief Executive Officer ad interim in addition to his function as Chairman of the Board. To ensure continued good governance, Fred Kindle, Vice-Chairman of the Board, has taken on certain additional responsibilities for the interim period in which the Chairman of the Board is also holding the position of Chief Executive Officer ad interim (see the Corporate Governance Report).
The share price (CHF 287.10) as of June 15, 2015 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.
Base salaries 11.6 12.0 Cash incentive awards earned for the year 5.9 11.9 Value of target share allocations 17.5 18.7 Service costs for pension benefits 3.9 3.6 Value of other remuneration 1.2 1.9 Total in USD 4,5 40.1 48.1 Total in CHF 4,5,6 38.7 44.4 in USD million, for the years ended December 31 2015 1, 2 2014 1, 3
Under the share option program, the total number of shares under option for members of the GEC as at December 31, 2015, and 2014, respectively, is set out in the following tables.
Number of vested share options as of December 31, 2015 Year of allocation Total
During the year, the remuneration architecture is being reviewed to ensure alignment with the latest market conditions and practices and to support the execution of the goals and objectives underlying the next strategy cycle.
General Insurance business operating profit 864 2,979 (71%) General Insurance combined ratio 103.6% 96.8% (6.7 pts)
• Other Operating Businesses reported a business operating loss of USD 720 million, compared with a loss of USD 960 million in 2014. This improvement was primarily driven by lower interest expense on debt, favorable foreign exchange impacts and several one-off items in both 2015 and 2014.
Gross written premiums and policy fees decreased by USD 2.3 billion to USD 34.0 billion. On a local currency basis, gross written premiums increased by 3 percent, driven by growth in North America Commercial and International Markets. In North America Commercial, this resulted from organic growth including an increase in new business through captives. In International Markets, gross written premiums increased on a local currency basis mainly in Latin America, partly due to inflation, but also from a new distribution agreement in Brazil. Global Corporate is in line with 2014 on a local currency basis. EMEA is slightly lower in local currency terms, but adjusting for the sale of the retail market business in Russia in 2014 and the exit from the personal lines business in the Netherlands owned by the Swiss business, premium volumes increased. Rate increases were lower by around 1.0 percent across all regions with the exception of International Markets, when compared with 2014. Overall rates increased by around 2 percent.
Source of earnings1 in USD millions, for the years ended December 31 2015 2014 Change
1 Each line represents the Group’s interest after deducting non-controlling interests, amounting in total to USD 223 million (in 2014 USD 239 million) in business operating profit.
(as % of APE) (NBM) 2, 4 1 New business value is calculated on embedded value principles after the effect of non-controlling interests. 2 As of January 1, 2015 a change in new business value and new business margin methodology was implemented relating to the calculation of the cost of residual non-hedgeable risk, which no longer includes diversification benefits between covered and non-covered business in accordance with Market Consistent Embedded Value Principles. New business value and new business margin figures for 2014 have been restated to reflect this change.
Farmers Management Services in USD millions, for the years ended December 31 2015 2014 Change
Business operating profit decreased by USD 129 million to USD 61 million due to underwriting losses, as well as lower net investment income resulting from reduced participation in the reinsurance agreements with the Farmers Exchanges.
The net underwriting result deteriorated by USD 92 million to a loss of USD 26 million driven by higher losses assumed from the Farmers Exchanges, including increased underlying losses, prior year reserve strengthening, primarily in the auto book of business, and an increase in catastrophe losses in 2015 compared with 2014 which together are reflected in the 3.1 percentage points increase in the loss ratio. The expense ratio, based on ceded reinsurance commission rates payable to Farmers Exchanges, was slightly lower due to a reduction in the APD ceding commission rate.
Headquarters business operating loss of USD 200 million decreased by USD 82 million, or by 29 percent in U.S. dollar terms and 25 percent on a local currency basis. The result is driven by several one-off items in both 2015 and 2014, including a reduction in performance related remuneration costs in 2015.
AA–/stable Standard & Poor’s financial strength rating of Zurich Insurance Company Ltd (as of December 31, 2015)
In addition to this qualitative approach, the Group regularly measures and quantifies material risks to which it is exposed. Zurich’s policy is to maintain capital consistent with an ‘AA’ financial strength rating for the Group. The Group translates that goal into a quantified risk tolerance. The Zurich Economic Capital Model (Z-ECM) provides a key input into the Group’s strategic planning process as it allows an assessment as to whether the Group’s risk profile is in line with the Group’s risk tolerance. Z-ECM forms the basis for optimizing the Group’s risk-return profile by providing consistent risk measurement across the Group.
The Group also has audit or oversight committees at the major business level. The committees are responsible for overseeing risk management and control functions including monitoring adherence to policies and periodic risk reporting. At the local level, these oversight activities are conducted through risk and control committees.
1 Excludes macro equity hedge (for more information, see ‘market risk including investment credit risk’)
The chart below shows the estimated impact on the Group’s Z-ECM ratio of: • A one percentage point increase/decrease in yield curves • A 20 percent rise/decline in all stock markets, after consideration of hedges in place • A one percentage point change in credit spreads
The U.S. Federal Reserve (Fed) withdraws stimulus too early, which chokes off growth domestically and globally, and leads to a sharp correction in equity and credit markets.
The Group’s underwriting strategy takes advantage of the diversification of general insurance risks across lines of business and geographic regions. The Group seeks to optimize shareholder value by achieving its mid-term return on equity target. Zurich’s underwriting governance is applicable throughout the Group.
Risks from man-made catastrophes Man-made catastrophes include such risks as industrial accidents and terrorism attacks. Zurich’s experience in monitoring potential exposures to natural catastrophes is also applicable to threats posed by man-made catastrophes, particularly terrorism.
The treaty structures of most catastrophe covers, including the regional retentions, remained stable in 2015. Zurich increased the attachment point of the Global Aggregate Catastrophe treaty, but included line of businesses-specific (marine and property) additional exposure to maintain a superior earnings protection for higher frequency scenarios within the retention of the regional covers.
All programs can be reinstated once, except the North America Earthquakes program and the Combined Global Catastrophe Occurrence / Aggregate Treaty.
The Group uses derivative financial instruments to limit market risks arising from changes in currency exchange rates, interest rates and equity prices, from credit quality of assets and liabilities and 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. The latter include cross-currency interest rate swaps in fair value hedges and cross-currency swaps in cash flow hedges of Zurich’s borrowings, in order to mitigate exposure to foreign currency and interest rate risk. In compliance with Swiss insurance regulation, the Group’s policy prohibits speculative trading in derivatives, meaning a pattern of ‘in and out’ activity without reference to an underlying position. The Group addresses the risks arising from derivatives through a stringent policy that requires approval of a derivative program before transactions are initiated, and by subsequent regular monitoring by Risk Management of open positions and annual reviews of derivative programs.
In USD millions, as of December 31 2015 2014 100 basis points increase in the interest rate yield curves General Insurance business Net impact after tax (288) (221) Global Life business Total impact on Embedded Value (276) (65) Rest of the business Net impact after tax 67 (47) 100 basis points decrease in the interest rate yield curves General Insurance business Net impact after tax 247 72 Global Life business Total impact on Embedded Value 29 (222) Rest of the business Net impact after tax (157) (11)
In USD millions, as of December 31 2015 2014 10% decline in stock markets General Insurance business Net impact after tax (459) (543) Global Life business Total impact on Embedded Value (289) (301) Rest of the business Net impact after tax (31) (61)
Debt securities by rating of issuer as of December 31 2015 2014
The Group’s objective in managing credit risk exposures is to maintain them within parameters that reflect the Group’s strategic objectives and risk tolerance. Sources of credit risk are assessed and monitored, and the Group has policies to manage the specific risks within the various subcategories of credit risk. To assess counterparty credit risk, the Group uses the ratings assigned by external rating agencies, qualified third parties, such as asset managers, and internal rating assessments. If external rating agencies’ ratings differ, the Group generally applies the lowest, unless other indicators justify an alternative, which may be an internal credit rating.
Zurich mitigates and responds to cyber risks and threats to data security. Data held by Zurich’s business partners is protected through contractual arrangements and controls that are built into ‘cloud governance’ procedures designed to secure Zurich’s data in accordance with regulatory requirements and the Group’s information security policies.
For more information on the Group’s other financial liabilities, see note 17 of the consolidated financial statements. See note 6 of the consolidated financial statements for information on the maturity of debt securities for total investments.
Financial information In this section Consolidated financial statements 158 Holding company 260 Shareholder information 276 Contact information 279 Glossary 280
Net change in reserves for unearned premiums 11 (296) (359) Net earned premiums and policy fees 42,624 48,321 Farmers management fees and other related revenues 27 2,786 2,791 Net investment result on Group investments 6 7,462 9,211
Comprehensive income for the period, as restated 3,949 2,338 200 (2,305) 233 24 (407) (383) (150) 3,799 43 3,842 Details of movements during the period
Other interest income received 5,150 6,261 Dividend income received 1,999 1,968 Other interest expense paid (997) (1,124) Income taxes paid (1,400) (1,379)
General information The Consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law. Where IFRS does not contain clear guidance governing the accounting treatment of certain transactions, including those that are specific to insurance and reinsurance products, IFRS permits reference to another comprehensive body of accounting principles that uses a similar conceptual framework. The Group’s accounting policies for insurance and reinsurance contracts are therefore based on those developed by the Group before the adoption of IFRS 4 in areas where IFRS 4 did not include specific requirements. Before this adoption, the Group typically applied U.S. GAAP pronouncements issued by the Financial Accounting Standards Board (FASB) on insurance and reinsurance contracts. Any changes to such pronouncements subsequent to this adoption are not reflected in the Group’s accounting policies. In case of business combinations, the Group may decide to maintain the local statutory treatment if this does not distort the fair presentation of the financial position of the Group. If significant, the impact of such cases would be described elsewhere in the notes to these Consolidated financial statements.
Significant accounting policies applied in these Consolidated financial statements are set out below. These policies have been consistently applied to all years presented unless otherwise stated. Other accounting policies are presented as part of the respective note disclosures.
For traditional participating and investment type life insurance contracts, DAC is adjusted for the impact of unrealized gains/(losses) on allocated investments that are recorded in OCI.
The costs of policy administration, investment management, surrender charges and certain policyholder taxes assessed against the policyholders’ account balances are included in policy fee revenue.
In September 2015, the Group increased its shareholding in Zurich Insurance Company South Africa Limited (ZICSA) from 84.05 percent to 100 percent for a total consideration of approximately USD 34 million. Subsequently the ZICSA shares were delisted from the Johannesburg Stock Exchange.
Divestments On October 30, 2014, the Group closed the sale of its General Insurance retail business in Russia to OLMA Group. The contractually agreed sales price amounted to RUB 1 billion (approximately USD 23 million) and was subject to a purchase price adjustment with no material impact. A pre-tax loss of total USD 247 million has been recorded within net gain/(loss) on divestments of businesses.
Mortgage and asset-backed securities – – 17,695 18,868 561 706 18,256 19,574
Net losses deferred in other comprehensive income were USD 21 million and USD 13 million before tax for the years ended December 31, 2015 and 2014, respectively.
Reserves for insurance contracts in USD millions, as of December 31 Gross Ceded Net
Fee income and other expenses (3,652) (3,901) 180 217 (3,472) (3,683) Interest and bonuses credited to policyholders 2,239 3,259 (115) (132) 2,125 3,127
Effect of changes in assumptions for future life policyholder benefits in USD millions, for the years ended December 31 2015 2014
Following a review of subsidiaries in Global Life, the Group reassessed the recoverability of the goodwill and concluded that USD 281 million was fully impaired of which USD 232 million related to the goodwill of the Global Life Germany cash generating unit (CGU) as a result of the continued low interest rate environment in Germany.
As of December 31, 2014, intangible assets relating to non-controlling interests were USD 121 million for the present value of future profits (PVFP) of acquired insurance contracts, USD 1,531 million for distribution agreements and USD 16 million for software.
Other financial liabilities Group derivative liabilities 362 429 Unit-linked derivative liabilities 7 15 Amounts due to policyholders 730 714 Amounts due to insurance companies, agents and intermediaries 1,022 1,322 Amounts due to reinsurers 1,285 1,118 Liabilities for cash collateral received for securities lending 93 229 Amounts due to investment brokers 1,185 1,547 Deposits from banking activities 141 250 Collateralized bank financing for structured lease vehicles 736 766 Liabilities for defined benefit plans1 3,248 4,046 Other liabilities for employee benefit plans 127 130 Other liabilities 3,662 3,970 Other non-financial liabilities Current tax payables 629 925 Restructuring provisions 386 125 Premium prepayments and other advances 864 1,022 Other liabilities 572 623 Total other liabilities 15,051 17,230 1 See note 21
Development of deferred income taxes included in equity in USD millions 2015 2014
None of the debt instruments listed in table 19.1 were in default as of December 31, 2015 or 2014.
The conversion rights are exercisable during a maximum period of ten years and option rights for a maximum period of seven years from the time of the respective issue. The conversion or option price or its calculation methodology shall be determined in accordance with market conditions whereby, for shares of Zurich Insurance Group Ltd, the quoted share price is to be used as a basis.
Net post-employment benefit (expense)/income: Current service cost (353) – (353) Interest (expense)/income (777) 643 (134) Settlements gains/(losses) 9 – 9 Past service (cost)/credit 135 – 135
RP 2014 with MP-2015 Generational projection with plan specific adjustments 21.36 22.02 23.82 24.50
Target shares allocated in 2015 will vest after a period of three years following the year of allocation (three year cliff vesting), with the actual level of vesting between 0 percent and 200 percent of the target shares allocated, depending on the achievement of pre-defined performance criteria. The performance criteria used to determine the level of vesting are the Group’s return on shareholders’ equity (ROE), the position of its relative total shareholder return (TSR) measured against an international peer group of insurance companies, and the achievement of cash remittance targets. The three pre-defined performance criteria are each assessed over a period of three consecutive financial years starting in the year of allocation. One half of the shares that actually vest are sales-restricted for a further three years. To further align the participants with the interests of the shareholders, effective from January 1, 2014, the target shares are credited with dividend equivalent shares during the vesting period to compensate participants in LTIP for dividends paid to shareholders. As of December 31, 2015 and 2014 there were 1,268 and 1,256 participants in this plan, respectively.
Following a hearing to consider the effect of the initial decision on the plaintiffs’ remaining claims, on July 21, 2014, the court issued a Tentative Statement of Decision for Phase 1A. The court ruled that all of the plaintiffs’ fraudulent transfer causes of action were barred, and asked the plaintiffs to confirm on the record their concession that their unfair competition claims were also barred (the final Statement of Decision for Phase 1A was filed on February 27, 2015). The court allowed the plaintiffs’ remaining claims to proceed, but held that the plaintiffs are bound by the insurance regulators’ determinations that the 1995 recapitalization was fair and in the best interests of Home’s policyholders, including the plaintiffs. In early 2015, certain plaintiffs committed to voluntarily dismiss their claims with prejudice in exchange for an agreement that the defendants will not pursue them for litigation costs. Requests for dismissal with prejudice of their claims were filed with the Court by all but two plaintiffs. The Group maintains that the Fuller-Austin Case is without merit and intends to continue to defend itself vigorously against the claims of any plaintiff that remains in the case.
Within level 3, the Group also classified: • Investment property amounting to USD 7,828 million and 6,818 million for Group investments and USD 4,341 million and USD 4,100 million for investments for unit-linked contracts as of December 31, 2015 and 2014, respectively. A large portion of this portfolio is valued using an internal income capitalization model. The model is asset specific and capitalizes the sustainable investment income of a property with its risk specific cap rate. This cap rate is an “all risk yield” with components such as asset class yield for core assets (lowest risk) plus additional premiums for additional risks, for example second tier location or deterioration risk. All cap rate components (risk premiums) are reviewed and, if necessary, adjusted annually before revaluations are performed. The model takes into consideration external factors such as interest rate, market rent and vacancy rate. The significant unobservable inputs which are outside this model, are estimated rental value, rental growth, long term vacancy rate and discount rate. Significant increases/(decreases) in rental value and rental growth, in isolation, would result in a significantly higher/(lower) fair value measurement. Significant increases/(decreases) in the long term vacancy rate and discount rate, in isolation, would result in a significantly lower/(higher) fair value measurement.
Tables 25.1a and 25.1b provide an analysis, for non unit-linked businesses, of the age of financial assets that are past due but not impaired and of financial assets that are individually determined to be impaired.
Certificates of contribution in USD millions, as of December 31 2015 2014 6.15% certificate of contribution, due June 2021 707 707 Various other certificates of contribution 23 23
Other Operating Businesses predominantly consist of 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.
Net investment result on unit-linked investments – – 6,168 10,457 – – – – 70 327 – – 6,238 10,784 of which: inter-segment revenues (527) (356) (316) (450) (16) (30) (1,222) (1,022) (33) (46) 2,112 1,904 Benefits, losses and expenses Insurance benefits and losses, net1,2 20,152 19,920 8,612 10,685 1,588 2,650 – (7) 394 1,116 – – 30,746 34,364
Investments in associates and joint ventures 4 4 11 13 – – 1 51 3 2 – – 18 70
Zurich International Life Limited Douglas, Isle of Man Global Life 100 100 GBP 109.0
Mark Humphreys Stephen O’Hearn Audit expert Global relationship partner Auditor in charge
Shareholders’ equity increased by CHF 357 million to CHF 17,408 million as of December 31, 2015, from CHF 17,051 million as of December 31, 2014. The increase was mainly driven by the net income after taxes for the year as well as capital contributed through the issuance of new shares to employees out of contingent capital, partially offset by the dividend paid in 2015. The Board will propose a dividend from the capital contribution reserve of CHF 17.00 per share for the year 2015 for approval at the Annual General Meeting to be held on March 30, 2016.
An audit involves performing procedures to obtain audit evidence so that material breaches of the legal requirements and the company’s articles of incorporation for the issue of new shares may be identified with reasonable assurance. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material breaches of the requirements concerning the issue of new shares, whether due to fraud or error.
Payment date as from 1 Proposed dividend, subject to approval by shareholders at the Annual General Meeting 2016; expected payment date as from April 5, 2016.
Combined ratio is a performance measure that indicates the level of claims and net technical expenses during the period relative to net earned premiums and policy fees. It is calculated as the sum of the loss ratio and the expense ratio.
Insurance deposits are deposits, similar to customer account balances, not recorded as revenues. However, the fees charged on insurance deposits are recorded as revenue within gross written premiums and policy fees. These deposits arise from investment contracts and insurance contracts that are accounted for under deposit accounting. They represent the pure savings part, which is invested.