Welcome For nearly 150 years, we have been ahead of our time, embracing innovation while finding new ways to serve and protect those who rely on us. We are proud of all that we have achieved. Our experience and ability to adapt to a changing business environment allow us to look to the future with confidence.” Mario Greco Group Chief Executive Officer
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That’s a complete transformation of the way insurance works and has worked for the last several centuries. It’s not a transformation that can happen overnight or even in the space of a few years. It’s a journey that is reshaping our entire industry.
We closely work with customers to identify risks tied to interconnectivity and cyber, and in 2019 introduced industry-specific coverage for cyber exposures. We also work to instill confidence in a digital society, for example, through our industry-leading data commitment introduced in 2019.
We improved our business mix, reduced volatility and improved profitability of our Property & Casualty portfolios while further growing our Life franchise through targeted acquisitions. We entered new and innovative markets and succeeded in reducing expenses. Our management structure has been strengthened and reinforced. And customer and employee satisfaction has improved. Farmers Exchanges has transformed its agents force and expanded its solutions for millennials.
Our role in the world The more we listen to people’s needs, the better our understanding of the role we must play. One theme to emerge is the need to protect the next generation and to create a better future for them to live in.
Building a business for the future To succeed requires looking to the future. We are proud that the next generation of employees is already making their voices heard, including those who will occupy our historic, newly renovated Mythenquai headquarters in Zurich. When finished, the building will contribute to our efforts worldwide to promote resource-efficient and innovative workplaces.
We want to do all we can to reduce climate risk, including by becoming the first insurer to sign a global pledge to help reduce global warming.
Volunteering in Latin America The Foundation provided funding to help renovate a school in Colombia. In 2019, led by Zurich’s CEO Latin America Claudia Dill, over 150 top Zurich executives from countries in the region joined local tradespeople to renovate the local school in Cartagena, Colombia. During the time they spent at the school, they could do a thorough job of repairing, painting, installing new plumbing, planting gardens and providing a library.
To the Executive Committee of Zurich Insurance Group AG, Zurich We have been engaged to perform assurance procedures to provide limited assurance on the non-financial reporting of Zurich Insurance Group AG and its consolidated subsidiaries (‘ZIG‘) for the year ended December 31, 2019.
The Group pursues a customer-centric strategy and is managed by regions, and in addition, Farmers in the U.S. and Commercial Insurance globally. The ExCo is headed by the Group CEO. Six members of the ExCo represent the Group’s businesses: the CEOs of the regions (CEO North America, CEO Europe, Middle East & Africa (EMEA) and Bank Distribution, CEO Latin America, CEO Asia Pacific), the CEO of Farmers and the CEO of Commercial Insurance. Four members of the ExCo represent Group functions: the Group Chief Financial Officer (Group CFO), the Group Chief Investment Officer (Group CIO), the Group Chief Risk Officer (Group CRO) and the Group Chief Operating Officer (Group COO). The Group COO has responsibility for operations and technology as well as underwriting, claims, and pricing, creating a unified sense of purpose and responsibility for technical excellence, efficiency and business transformation across all parts of the business. The Group CFO is also responsible for Group Reinsurance. For further information on the ExCo see pages 64 to 74.
A list of the Group’s significant subsidiaries can be found on pages 285 to 287. For further information on the share listing of Zurich Insurance Group Ltd, see the investor section on pages 24 to 25 and under the following link: Zurich Insurance Group Annual Report 2019 45
Educational background Mr. Hayman holds an MBA in finance from the University of Hartford, Barney School of Business and Public Administration, West Hartford, and a bachelor’s degree in arts, economics and political science from Saint Olaf College, Northfield. He is a chartered life underwriter and a chartered financial consultant.
Committees of the Board of Directors The Board has the following standing committees, which regularly report to the Board and submit proposals for resolution by the Board: Governance, Nominations & Sustainability Committee Composition and membership: The Governance, Nominations & Sustainability Committee consists of at least four Board members. Currently, the committee comprises Michel M. Liès (Chairman), Dame Alison Carnwath, Christoph Franz, Jeffrey Hayman and Monica Mächler.
• receiving periodic reports from the risk management function and assess whether all “significant” risk matters (as defined in the Zurich Risk Policy) are being appropriately addressed by ExCo members in a timely manner
• reviewing and recommending for approval to the Board investments above pre-defined threshold
For further information on risk governance, see the risk review on pages 126 to 161. The Risk and Investment Committee meets at least four times per year. In 2019 it met eight times.
External appointments Alison Martin became a member of the Swiss Federal Institute of Technology (ETH) Risk Center’s advisory board in September 2018. In June 2019 she also became a Councillor of the British-Swiss Chamber of Commerce.
Board The Board is ultimately responsible for the supervision of the control and assurance activities.
Group Compliance is a control function responsible for: 33 enabling the business to manage its compliance risks 33 being a trusted advisor 33 providing independent challenge, monitoring and assurance 33 assisting management to promote compliance culture and ethics.
Zurich Insurance Group Ltd is not aware of any person or institution which, as of December 31, 2019, directly or indirectly, alone or with others, exercised or was a party to any arrangements to exercise control over Zurich Insurance Group Ltd.
We are now actively moving to bring forward a range of solutions designed to promote a culture of continuous learning within Zurich, reskilling and upskilling our employees to ensure they are fit for the future needs of our business.
This summary provides an overview of the 2019 remuneration of Zurich Insurance Group Ltd and its affiliates (Group or Zurich), including details regarding the link between business performance and variable pay decisions for 2019.
Philosophy The remuneration philosophy is an integral part of the overall employment offering to employees. Based on established remuneration principles, the Group operates a balanced and effectively managed remuneration system that provides competitive total remuneration opportunities to attract, retain, motivate and reward employees. The remuneration system and practices are embedded in the Group’s risk management framework and take into consideration legal and regulatory requirements, as well as market developments.
Generally paid within an 80 – 120 percent range around the relevant market median.
Assessment of the predefined performance criteria as per the vesting grid: The vesting grid is set and reviewed by the Board annually to ensure alignment with the strategy and �nancial targets.
Directors’ fees As a global insurance provider, Zurich’s Directors’ fees need to be established at a level which enables the Group to attract and retain individuals with a long-term interest in Zurich’s success and reflecting the diversity of the Group’s employee and customer base. To assist in determining Board remuneration, an independent adviser carries out benchmarking studies on a regular basis. Zurich aims to set the remuneration of its members of the Board at the relevant median levels using the Swiss Market Index (SMI) as a basis. Based on the role and the fee structure, fee levels are established for each member of the Board. Fees are paid in cash and in shares, with approximately half of the basic fee provided in five-year sales-restricted Zurich shares. The fees paid to Directors (including the portion provided in sales-restricted shares) are not subject to the achievement of any specific performance conditions.
The following table sets out the current fee structure and levels for the Chairman, the Vice-Chairman and the members of the Board, as well as committee fees and chair fees for the four committees. The outlook section later in this report details the proposed fee structure applicable from the AGM in 2020.
4 The shares allocated to the Directors are not dependent on the achievement of performance criteria and are sales-restricted for five years. 5 As of June 16, 2019, Michel Liès was allocated 2,223 shares, Christoph Franz was allocated 592 shares, and the other members of the Board were allocated 355 shares.
11 At the AGM on April 4, 2018, Michel Liès was elected to the Board as Chairman of the Board, and Tom de Swaan, Fred Kindle and Susan Bies retired from the Board. Michel Liès and Catherine Bessant were newly elected as members of the Remuneration Committee. At the constituent Board meeting following the AGM, the Board appointed Christoph Franz as Vice-Chairman of the Board.
Audited Special payments and termination arrangements, additional honoraria and remuneration and personal loans for Directors At the AGM on April 3, 2019, Michael Halbherr, Jasmin Staiblin and Barry Stowe were elected as new members of the Board, and David Nish retired from the Board. No replacement payments or other benefits were provided. No termination payments (golden parachutes) were made, nor any other benefits such as additional contributions to occupational pension schemes were provided to the leaving member of the Board.
M. Liès, Chairman 4,746 2,523 C. Franz, Vice-Chairman 2,930 2,338 J. Amble, Member 2,133 1,778 C. Bessant, Member 1,178 823 A. Carnwath, Member 3,058 2,703 M. Halbherr, Member 355 n.a. J. Hayman, Member 1,716 1,361 M. Mächler, Member 2,681 2,326 K. Mahbubani, Member 2,133 1,778 J. Staiblin, Member 1,225 n.a. B. Stowe, Member 355 n.a. Total 22,510 15,630 1 None of the Directors, including parties related to them, held more than 0.5 percent of the voting rights of Zurich Insurance Group Ltd shares as of December 31, 2019 or 2018, respectively.
Service costs for pension benefits 0.5 0.5 2.8 2.9 Value of other remuneration 0.1 0.1 1.4 1.7 in CHF million, for the years ended December 31 2019 7 2018 7 2019 7, 2 2018 7, 3, 4
Sign-on payments/number of beneficiaries 1.7 4 11.4 15 Severance payments/number of beneficiaries – – 0.1 1 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.
As of December 31, 2019, the IFSR of Zurich Insurance Company Ltd, the main operating entity of the Group, was ‘AA–/Positive’ by S&P Global Ratings, ‘Aa3/Stable’ by Moody’s, and ‘A+ (Superior)/Stable’ by A.M. Best.
In addition to these covers, the Group purchases several regional catastrophe covers, entertains a bilateral risk swap, and various line of business-specific risk treaties. These covers are reviewed continuously and are subject to change going forward.
Analysis of economic sensitivities for equity risk Table 5 shows the estimated net impact before tax from a 10 percent decline in stock markets, after consideration of hedges in place, as of December 31, 2019 and 2018.
Risk management and internal controls The Group considers internal control to be key for managing operational risk. The Board has overall responsibility for the Group’s risk management and internal control frameworks. The objectives of the Group’s internal control system are to provide reasonable assurance that Zurich’s financial statements and disclosures are materially correct, support reliable operations, and to ensure legal and regulatory compliance. The internal control system is designed to mitigate rather than eliminate the risk that business objectives might not be met. Key controls are assessed for their design and operating effectiveness.
Group-wide liquidity management policies and specific guidelines govern how local businesses plan, manage and report their local liquidity and include regular stress tests for all major legal entities and branches within the Group. The stress tests use a standardized set of internally defined stress events, and are designed to provide an overview of the potential drain on liquidity if the Group had to recapitalize local balance sheets. Similar guidelines apply at the Group level, and detailed liquidity forecasts are regularly conducted, based on local businesses’ input and the Group’s forecasts. As part of its liquidity management, the Group maintains sufficient cash and cash equivalents and high-quality, liquid investment portfolios to meet outflows under expected and stressed conditions. The Group also maintains internal liquidity sources that cover the Group’s potential liquidity needs, including those that might arise in times of stress. The Group takes into account the amount, availability and speed at which these sources can be accessed. The Group has access to diverse funding sources to cover contingencies, including asset sales, external debt issuance and making use of committed borrowing facilities or letters of credit. The Group maintains a range of maturities for external debt securities. A potential source of liquidity risk is the effect of a downgrade of the Group’s credit rating. This could affect the Group’s commitments and guarantees, potentially increasing liquidity needs. This risk, and mitigating actions that might be employed, are assessed on an ongoing basis within the Group’s liquidity framework.
33 Implementation: implement mitigation actions and reputational action plans locally in the businesses. Mobilize expert support available across the Group and escalate as necessary, according to governance procedures.
Climate-change risk Climate change is perhaps the most complex risk facing society today: it is intergenerational, international and interdependent. As a global insurer, Zurich faces risks from climate change and provides this disclosure per its commitment to adopt the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
Zurich considers the risk to its own operations from climate risk as less material, as they are generally not located in highly exposed areas and business continuity plans are in place to react to relevant extreme weather events.
In Latin America, the combined ratio of 94.7 percent was 5.8 percentage points lower than in 2018, driven mainly by an improved accident year loss ratio in Mexico and Argentina and higher prior year reserve releases.
Total reserves for life insurance contracts, net of reinsurance, and liabilities for investment contracts (net reserves) 226,765 202,024 12%
Group Functions and Operations in USD millions, for the years ended December 31 2019 2018 Change
These factors also drove an increase in the total liabilities for the Group to USD 368 billion from USD 364 billion in 2018.
The Group continued to drive its strategic objectives of investing to improve the quality of service and experience of our customers and becoming a more agile organization.
The Group continues to focus on growth opportunities in the Asia Pacific region. In November 2019 the Group completed the acquisition to acquire 80 percent of Adira Insurance from Bank Danamon Indonesia and a minority investor for approximately USD 465 million. The acquisition includes a 20-year distribution agreement.
Net income after taxes 4,384 3,977 attributable to non-controlling interests 237 261 attributable to shareholders 4,147 3,716 in USD
Additional paid-in capital 19 1,235 1,180 Net unrealized gains/(losses) on available-for-sale investments 3,985 649 Cash flow hedges 454 363 Cumulative foreign currency translation adjustment (9,553) (9,676) Revaluation reserve 223 211 Retained earnings 38,649 37,452 Shareholders’ equity 35,004 30,189 Non-controlling interests 1,545 1,613 Total equity 36,549 31,802 Total liabilities and equity 404,688 395,342 1 The increase in other liabilities is mainly due to the adoption of IFRS 16 ‘Leases’ (see note 2). 2 In 2019, the Group reclassified USD 2 billion of liabilities to held for sale based on agreements to sell certain businesses in the UK and Germany (see note 5). Net decrease in total liabilities held for sale by USD 24 billion relates to completion of the sale in the UK. As of December 31, 2018, the Group had USD 26 billion of liabilities held for sale based on agreements to sell certain businesses in the UK, Venezuela and Germany (see note 5).
Net changes in capitalization of non-controlling interests – – – – – – – – (350) (350)
The Group is currently assessing the impact of the application of both IFRS 17 and IFRS 9. As of December 31, 2019, it was not practicable to quantify what the potential impact would be on the Group’s financial position or performance once these standards are adopted.
Policyholder contract deposits represent the estimated policy benefits for investment type insurance contracts invested in non-unit-linked funds. This liability comprises the accumulation of premiums received, less charges, plus declared policyholder dividends.
OnePath preliminary balance sheet as of the acquisition date in USD millions, as of May 31, 2019 Total 1
Net assets acquired 1,395 Non-controlling interests Total acquisition costs 1,395 1 As of December 31, 2019, the assets and liabilities of OnePath are recognized at acquisition date, May 31, 2019. The Group is currently in the process of assessing preliminary purchase price adjustments.
Adira Insurance On September 27, 2018, Zurich Insurance Group entered into agreements to acquire 80 percent of PT Asuransi Adira Dinamika (Adira Insurance), a General Insurance provider, from PT Bank Danamon Indonesia (Bank Danamon) and a minority investor for approximately USD 465 million, including potential future incremental payments based on business performance. The agreement includes a 20-year distribution agreement. On November 27, 2019, Zurich Insurance Group completed the acquisition. Based on the purchase price, the preliminary value of intangible assets, mainly comprising goodwill and distribution agreements, are estimated at USD 340 million, including the 20 percent portion relating to non-controlling interest.
1 Net unrealized gains/(losses) on Group investments include net gains arising on cash flow hedges of USD 454 million and USD 363 million as of December 31, 2019 and 2018, respectively.
Cumulative (deficiency)/ redundancy of net reserves 2,504 1,576 1,552 1,041 1,382 2,402 1,996 1,516 583 Cumulative (deficiency)/ redundancy as a percentage of initial net reserves 4.5% 2.8% 2.7% 1.8% 2.5% 4.5% 3.8% 2.7% 1.2%
Table 8.4 presents changes in the historical reserves for losses and loss adjustment expenses, net of reinsurance, that the Group established in 2010 and subsequent years. Reserves are presented by financial year, not by accident year. The reserves (and the development thereon) are for all accident years in that financial year. The top line of the table shows the estimated gross reserves for unpaid losses and loss adjustment expenses as of each balance sheet date, which represents the estimated amount of future payments for losses incurred in that year and in prior years. The cumulative paid portion of the table presents the cumulative amounts paid through each subsequent year in respect of the reserves established at each year end. Similarly, the cumulative incurred losses section details the sum of the cumulative paid amounts shown in the triangle above and the changes in loss reserves since the end of each financial year. The net undiscounted reserves re-estimated portion of the table shows the re-estimation of the initially recorded reserve as of each succeeding year end. Reserve development is shown in each column. Changes to estimates are made as more information becomes known about the actual losses for which the initial reserves were established. The cumulative deficiency or redundancy is equal to the initial net reserves less the liability re-estimated as of December 31, 2019. It is the difference between the initial net reserve estimate and the last entry of the diagonal in the net undiscounted reserves re-estimated portion of the table. Conditions and trends that have affected the development of reserves for losses and loss adjustment expenses in the past may or may not necessarily occur in the future, and accordingly, conclusions about future results cannot be derived from the information presented in table 8.4.
2 Included within losses and loss adjustment expenses (see table 10.1).
Receivables and other assets in USD millions, as of December 31 2019 2018
Expected and actual income tax expense in USD millions, for the years ended December 31 Rate 2019 Rate 2018
On April 3, 2019 the Annual General Meeting 2019 approved the cancellation of the 1,740,000 own shares of Zurich Insurance Group Ltd with a nominal value of CHF 0.10 repurchased under the public share buy-back program.
For post-employment defined benefit plans, total contributions to funded plans and benefits paid directly by the Group were USD 282 million for 2019 compared with USD 642 million for 2018. The estimated total for 2020 is USD 278 million (actual amount may differ).
Key information by main country – prior period in USD millions, as of December 31, 2018
Maturity analysis of benefits expected to be paid (in USD millions): < 1 year 221 343 227 49 215 479 220 58 1 to 5 years 917 1,449 892 231 893 1,819 879 254 5 to 10 years 1,117 2,340 1,065 297 1,129 2,070 1,069 348
Guarantees and letters of credit In 2019 and 2018, USD 629 million and USD 605 million, respectively, related to guarantees in the aggregate amount of GBP 475 million which were provided to the directors of a wholly owned subsidiary in connection with the repatriation of capital. These guarantees have no expiry date.
The Group has voluntarily disclosed the results of the review and the regulatory issues presented by sales to U.S. residents to the Swiss Financial Market Supervisory Authority (FINMA), the U.S. Department of Justice (DOJ) and other authorities. The Group is cooperating with these authorities.
Investment property – – 3,034 3,034 Total investments for unit-linked contracts 1 92,529 29,064 3,974 125,567 Financial liabilities at FV through profit or loss
Neither past due nor impaired financial assets 139,831 6,475 7,592 12,061 165,959 Past due but not impaired financial assets Past due by: Past due but not impaired financial assets – 75 – 2,080 2,155
Tables 24.2a and 24.2b show how the allowances for impairments of financial assets in tables 24.1a and 24.1b developed during the periods ended December 31, 2019 and 2018, respectively.
Total fair value through profit or loss securities – – 8,862 8,862 8,862 8,862 Held-to-maturity debt securities 2,655 2,118 – – 2,655 2,118 1 Do not include policyholder loans, which will come under IFRS 17 and are therefore not applicable for IFRS 9, of USD 742 million and USD 636 million for fair value and carrying value, respectively.
b) Quota share reinsurance treaty with the Farmers Exchanges The Farmers Exchanges cede risk through a quota share reinsurance treaty, the All Lines Quota Share reinsurance agreement (All Lines agreement) with Farmers Reinsurance Company (Farmers Re Co), a wholly owned subsidiary of FGI. The All Lines agreement can be terminated after 90 days’ notice by any of the parties.
Gross written premiums and policy fees 9,589 10,103 461 407 2,055 1,379 3,056 2,874 28 20 (37) (28) 15,151 14,754 Net earned premiums and policy fees 8,899 9,439 447 392 1,756 1,199 2,562 2,473 19 12 – – 13,683 13,514
Reserves for losses and loss adjustment expenses, gross 57,473 58,835 – – 316 467 1 23 1,404 1,649 (30) (61) 59,165 60,913 Reserves for unearned premiums, gross 17,523 16,620 – 1 20 79 – 2 10 14 (2) (2) 17,551 16,714 Future life policyholder benefits, gross 30 32 72,151 69,420 2,200 2,151 2 2 3,376 3,348 (2) (4) 77,756 74,950 Policyholder contract deposits and other funds, gross 15 30 21,498 18,284 3,867 3,882 – – 2,101 2,071 – – 27,480 24,266 Reserves for unit-linked insurance contracts, gross – – 72,863 64,168 932 746 – – 3,889 3,852 – – 77,684 68,766
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group audit materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate, on the consolidated financial statements as a whole.
Based on the work performed we determined that the methodologies, assumptions and underlying data used in the valuation of property and casualty reserves are reasonable and in line with industry accepted practice.
Proposed appropriation of available earnings as of December 31 2019 2018
The Board of Directors proposes to the Annual General Meeting to be held on April 1, 2020, to appropriate the available earnings for 2019 as follows: in CHF thousands Available earnings
New business value (NBV), after tax is a measure that reflects the value added by new business written during the period, including allowances for frictional costs, time value of options and guarantees, and the cost of non-market risk, and is valued at the point of sale. It is calculated as the present value of the projected after-tax profit from life insurance contracts sold during the period using a valuation methodology consistent with the EV principles, after the effect of non-controlling interests.