Life Insurance embedded value operating return, after tax1 in %, for the years ended December 31
Martin D. Feinstein will retire effective March 31, 2005 as Chief Executive Officer of Farmers
The Way Forward The Farmers Exchanges, which we manage but do not own, have embarked on a major program to improve surplus by USD 1 billion by 2006.
Pacific and southern Africa. We consider these attractive markets to have considerable longterm potential, and our goal is to develop our capacity to serve them better. For example, we have expanded our presence in China, one of the most dynamic emerging markets, by strengthening the local management team representing the Group and by increasing our share in New China Life Insurance Company
Corporation asked us to write a comprehensive property and liability program. McDonald’s firmly believes that its major business partners should understand its philosophy and be familiar with day-to-day sales operations.
The Zurich Way builds on the things we already do well, and aims to instill common values and principles. It promotes the highest operational standards and ensures a consistent approach to our core activities, including underwriting and claims. It encourages our employees continually to build their skills and to share their knowledge and best practices.
Zurich’s in-house change and project experts to teach sponsors and project managers how to be change agents. The success of that early program resulted in it being opened up to employees from Europe.
Steven has now been helping the two girls for eight years. As he comments,“It’s great to know that one individual can make a big difference.
The Audit Committee of the Board receives regular reports regarding the Group’s risk profile, and mitigation activities.
Officer regularly reports the five largest exposures in every rating category to the Audit
Banks and financial institutions Mortgages Insurance and reinsurance Government agencies Special purpose companies (ABS/MBS etc) Other industries (rest)
An example was our swift response to relief efforts after the devastating tsunami at the end of 2004.The environment is another area of focus. In 2004, a number of our units advanced with their environmental goals, including efforts aimed at energy usage efficiency and reduction of commuting and business travel.
To be able to provide on-going and updated information, we report on our specific progress and activities in the environmental, social, and other areas of corporate responsibility on our Web site www.zurich.com.
We focus our corporate responsibility work on compliance, ethics and corporate citizenship, including overall sustainability. In 2004 we worked to advance these areas through enhanced communications, training and other initiatives.
• Life Insurance increased business operating profit by USD 207 million to USD 1.1 billion.This improved performance reflects the successful launching of profitable new products as well as reduced operating expenses, particularly in Europe. We are progressively changing the business model to position this segment in order to sustain future profitable growth.
Total investment return1 5.9% 4.9% 1.0 pts 1 Before investment expenses.
Common stock portfolios backing the participating with-profit policyholder contracts 2,032 1.0% 1,599 0.9%
Loss ratio by significant geographic region for the years ended December 31 2004 2003 Change
In Switzerland, gross written premiums and policy fees increased by 6% adjusted for exchange rate movements and the intra-segment transfer of certain business in 2004. This increase was largely attributable to rate increases in the health and automobile lines of business. In Germany, our largest market within Continental Europe, gross written premiums and policy fees decreased by 2% in local currency, reflecting the reduction in new business mainly in the automobile line of business following the tightening of our underwriting standards. Spain experienced a 10% increase in gross written premiums and policy fees in local currency. The growth was most significant in the automobile, third-party liability and fire lines of business. Gross written premiums and policy fees in Italy increased by 7% in local currency driven by the growth in the automobile line of business. Finally, CEC experienced a 8% increase in gross written premiums and policy fees in local currency and after adjusting for intra-region transactions and divestments.
Overall, the loss ratio improved by 3.5 percentage points to 71.1% for 2004 from 74.6% in the prior year. Total net technical expenses increased by 5% to USD 2.1 billion, at a lower rate than net earned premiums, reflecting the impact of the cost savings and profit improvement initiatives implemented across the region. This resulted in an improvement in the expense ratio by 0.8 percentage point to 22.9%.
North America Consumer – embedded value highlights in USD millions, for the years ended December 31 2004 2003 Change
The Farmers Exchanges also had an outstanding year. Premium growth funded by the addition of USD 462 million in organic surplus, fueled the steady growth in Farmers Management Services earnings. The all-lines combined ratio of Farmers Exchanges improved by more than five percentage points year-over-year to 96.8%, despite the four hurricanes in the US and the Caribbean.
Policyholder dividends and participation in profits, net of reinsurance 10 7,014 6,045
Changes in operational assets and liabilities: Deferred policy acquisition costs (816) (612)
The Board of Directors of Zurich Financial Services has authorized these consolidated financial statements for issue on February16, 2005. These Financial Statements will be submitted to the Annual General Meeting of Shareholders to be held on April 19, 2005 for approval.
Transfer agent fees are based on a cost per account and transaction-based fees. For mutual funds, a component of the transfer agent fee can be contractual fee arrangements applied to assets under management. Transfer agent fees are recognized when services have been provided per the contract. Commission revenue is recognized on the trade date when the performance obligation is complete and the fees are payable.
For participating traditional life insurance policies, future policy benefit liabilities are calculated using a net level premium method on the basis of actuarial assumptions equal to guaranteed mortality and interest rates.
Investments backing UK with-profits life insurance policies and certain Australian life insurance liabilities are held as trading assets and carried at fair value. Movements in the carrying value of these assets are charged to current period income to match the offsetting amounts attributable to policyholders.
Real estate held for investment purposes is initially recorded at cost, with transaction costs included in the initial measurement. It is subsequently measured at fair value with changes in fair value recognized in current period income. No depreciation is recorded for real estate held for investment. The gain or loss on disposal of real estate held for investment is based on the difference between the proceeds received and the carrying value of the investment.
(j) Debt issued Debt issued by the Group is initially measured at cost, which is the fair value of the consideration received, net of transaction costs incurred. Subsequent measurement is at amortised cost, using the effective interest rate method to amortise cost at inception to the redemption value over the life of the debt.
Cash and cash equivalents as of December 31 13,536 2,141 15,677
Amortized Estimated Table 6.3 cost fair value Debt securities maturity schedule Held-to-maturity Available-for-sale in USD millions, as of December 31 2004 2003 2004 2003
1 Since May13, 2004, PSP Swiss Property AG, Switzerland has no longer been classified as an investment in associates, as the Group’s ownership interest declined below 20%.
Equity securities (incl. trading equity portfolios in capital markets and banking activities) 61,513 56,625 61,513 56,625
Total policyholder dividends and participation in profits 7,013 6,004 1 41 7,014 6,045
Accumulated amortization as of December 31 (598) (463) (1,334) (1,352) (1,197) (1,425) (685) (642) (3,814) (3,882)
On September17, 2004, Zurich Finance (USA), Inc. issued EUR1 billion of 4.5% notes, due September 2014.The notes were issued under the EMTN Programme and are guaranteed by Zurich Insurance Company.
(g) Dividend restrictions and capital and solvency requirements Zurich Financial Services is not subject to legal restrictions on the amount of dividends it may pay to its shareholders other than under the Swiss Code of Obligations. The Swiss Code of Obligations provides that 5% of the annual profit must be allocated to the general legal reserve until such reserve in the aggregate has reached 20% of the paid-in share capital. As of December 31, 2004, the amount of the general legal reserve exceeded 20% of the paid-in share capital of Zurich Financial Services. Similarly, the company laws of many countries in which Zurich Financial Services’ subsidiaries operate may restrict the amount of dividends payable by such subsidiaries to their parent companies.
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period, excluding the weighted average number of shares held as treasury shares. Diluted earnings per share reflects the effect of potentially dilutive shares.
Other defined Table 22.4 Defined benefit post-employment Components of net periodic expenses pension plans benefits in USD millions, for the years ended December 31 2004 2003 2004 2003
Expired during period (111,763) – 405 n/a 1 Only fixed exercise prices were applied.
The risk-free interest rate was determined by using the seven year CHF swap rate for 2004 and 2003, respectively.The fair value of any other share options granted during the year has been determined using the same methodology.
Outstanding loans and guarantees granted to members of the Group Executive Committee amounted to USD 3 million for both years ended December 31, 2004 and 2003. No outstanding loans or guarantees were granted to directors of Zurich Financial Services for either of the years ended December 31, 2004 and 2003.The term “directors” and “members of the Group Executive Committee” in this context includes the individual as well as members of their respective households. Remuneration paid to the members of the Board of Directors of Zurich Financial Services in 2004 and 2003 were USD 2.0 million and USD1.9 million, respectively.
Net capital gains on investments and impairments 87 278 4,525 4,380
Table 27.3 for the years ended for the years ended Assets Premiums, revenues and assets by geographical segment December 31 December 31 as of December 31
Eagle Star Insurance Company (Ireland) Ltd. Dublin General Insurance 100.00 100.00 EUR 4.6
Allied Zurich p.l.c. London, England Corporate Center 100.00 100.00 GBP 378.1
At the beginning of 2004, the Group was divided into four geographical business divisions: North America Corporate; North America Consumer, including Latin America1; Continental Europe; and United Kingdom, Ireland, Southern Africa (UKISA), including Asia Pacific1. Changes to the Group’s geographical structure that were announced in March and April 2004, will only become effective in the financial reporting in 2005. As a result of these changes, which include the regrouping of the businesses in Europe and further alignment of the Group’s businesses, the Group is geographically divided into the following business divisions: North America, Europe, International Businesses and Centrally Managed Businesses.
Operational Group structure 1 Latin America and Asia Pacific were allocated to the Rest of the World geographical segment for IFRS reporting purposes.
Fritz Gerber is the Honorary Chairman of Zurich Financial Services. He was chairman of Zurich Insurance Company between 1977 and 1995 and its chief executive officer between 1977 and 1991. In recognition of his leadership and services to that company, he was appointed Honorary Chairman. Such designation does not confer board membership or any director duties or rights, nor does it entitle him to any director’s fees.
Employment agreements have been entered into with the members of the GEC, setting out the terms and conditions on which they are employed. With regard to termination benefits, the longest period of severance for members of the GEC is two years, including the notice period, and no additional severance benefits are provided in the case of a Change of Control. The Group’s share-based compensation programs include regulations regarding the impact of a Change of Control. These regulations provide that in the case of a Change of Control, the Administrator has the right to have the existing share obligations rolled over into new share rights or to provide a consideration for such obligations that are not rolled over. In the case of those participants who lose their employment as a result of a Change of Control, there is an automatic right to the vesting of share obligations.
PwC and its predecessor organizations, Coopers & Lybrand and Schweizerische Treuhandgesellschaft AG, have served as external auditors of Zurich Financial Services and its predecessor organizations since May11,1983. In 2000, a request for proposals for 2001 and subsequent years was made by inviting all major auditing firms to submit work programs and tender offers, where the program and offer of PwC prevailed.
The total of the fees (including expenses and Value Added Taxes) charged in the year 2004 by the Group auditors and parties associated with them for additional services performed for Zurich Financial Services or one of the Group’s companies amounted to USD 8.0 million (USD 8.3 million in 2003).
For former members of the GEC (including its equivalent prior to its formation), the Group paid amounts totaling USD 2.4 million to one former member during 2004. No payments have been made to any other former members of the Board of Directors.
Share Plans for members of the Group Executive Committee Under the Group’s Long Term Incentive Plan running for the period January1, 2003, to December 31, 2005, the first tranche of shares and share options became eligible for vesting in 2004 based on the performance achievements in 2003. Vesting was assessed in relation to the Group’s Return on Equity (ROE) in 2003 and the position of Zurich’s total shareholder return in comparison to an international peer group of insurance companies during 2003. The overall performance in 2003 led to a vesting percentage of 129%.
Report of the statutory auditors Zurich Financial Services Holding Company – Financial Statements
Number of shares issued with a nominal value of CHF 6.501 and CHF 9.002, respectively 144,006,955 144,006,955
Les principales positions de marché de la Zurich 2ème assureur dommages mondial pour les grandes entreprises1 4ème assureur dommages aux Etats-Unis 2 4ème assureur dommages en Europe 3
Return on common stockholder equity for the years ended December 31