Zurich expects policymakers and supervisors to be assertive regarding group and local legal structure and organizational matters. There will be continued pressure to reduce complexity at group and subsidiary levels. Public opinion – through voter-booth initiatives or regulatory demands – may also extend to compensation and liability exposures, potentially having an impact on recruitment and retention issues.
What we do At Zurich, we are focusing our investments on markets with the highest potential, including mature and emerging markets. We have set clear priorities that will enable us to build on our distinctive market positions in corporate, commercial mid-market and select retail markets.
We will continue to seek out bancassurance deals where we can offer value to our business partners.
Zurich Basics and The Zurich Commitment will continue to guide our actions with respect to our four key stakeholders groups: our customers, our people, our shareholders and the communities in which we live and work.
Generating high levels of free cash flow Net cash remittances to Group 3 >USD 9 billion
The Group’s solvency measured on an economic basis as determined under the Swiss Solvency Test improved by 21 percentage points, rising to 206 percent as of July 1, 2013. Shareholders’ equity decreased by USD 2.0 billion to USD 32.5 billion during 2013 including net income attributable to shareholders of USD 4.0 billion, and after a decrease in net unrealized gains on investments of USD 2.8 billion and the dividend of USD 2.7 billion paid in April 2013.
In July 2013 Zurich added two research institutions to its alliances: the IIASA, a non-governmental research organization located in Austria, and the Risk Management and Decision Processes Center at the Wharton School of the University of Pennsylvania in the U.S. The initial focus is on addressing gaps in flood resilience research, and efforts to develop a systems-based model of the drivers of flood risk. We also published a white paper on floods in Central Europe in June 2013 offering recommendations for ways to mitigate damage from such events in future. It included observations from Zurich risk engineers and claims experts, who were on the ground right after the floods to gain firsthand insights.
(USD millions) 0.4 – – Total time volunteered from workforce (business hours) 28,000 10,000 180% Workforce actively volunteering (%) 24.0% 12.0% 12.0 pts
Performance: We committed in 2008 to reducing our carbon footprint per employee by 10 percent by 2013, measured against a 2007 baseline. At the end of 2012 Zurich had exceeded this target, reducing carbon emissions per employee by 17 percent. Our efforts to meet this goal included adopting energy-efficiency measures and better utilizing space in office buildings, purchasing renewable energy, and reducing business travel. New Group-wide environmental targets will be communicated in the second quarter of 2014. These will include, but not be limited to further reduction of carbon emissions.
Our global practices promote consistency and a sense of unity for our employees. We can offer international career opportunities in areas including risk engineering, marketing, claims, human resources, finance, underwriting, IT, investment management and many others. Mobility plays an important role, including international rotations that give employees opportunities to work in different countries and cultures while providing agility to deploy skills where needed. Further, employees benefit from working in an environment where they can learn from each other and gain insight through different perspectives. Our aim is to provide lifelong learning and development opportunities for all of our employees.
Programs: Zurich is committed to serving our main stakeholder groups. To reinforce this, during 2013 the performance of our senior Leadership Team was measured according to the results and behavior required by our Zurich Commitment. In 2014, the work and behavior of all employees will be similarly evaluated through our standard performance management process.
The Group’s operating segments have been identified on the basis of the businesses operated by the Group and how these are strategically managed to offer different products and services to specific customer groups. The Group’s reportable segments are as follows: • General Insurance is the segment through which the Group provides a variety of motor, home and commercial products and services for individuals, as well as small and large businesses.
1 Zurich Insurance Group Ltd has established an American Depositary Share, or ADS, level 1 program in the U.S. Under this program, The Bank of New York Mellon Corporation issues the ADSs. Each ADS represents the right to receive one-tenth of one share of Zurich Insurance Group Ltd. Each ADS also represents securities, cash or other property deposited with The Bank of New York Mellon Corporation but not distributed to ADS holders. Zurich’s ADSs are traded over the counter (OTC) and are evidenced by American Depositary Receipts, or ADRs. Since 1st July 2010, Zurich’s ADRs have been traded on “OTCQX”, an electronic platform operated by OTC Markets Group Inc. (formerly “Pink OTC Markets Inc.”) under the symbol ZURVY. ADS holders are not treated as shareholders of Zurich Insurance Group Ltd and are not able to directly enforce or exercise shareholder rights. Only The Bank of New York Mellon Corporation as Depositary of the level 1 program may exercise voting rights with respect to instructions received from beneficial owners of ADRs.
The Board is responsible for the ultimate management of Zurich Insurance Group Ltd and, to the extent legally permissible, of the Group as well as for the supervision of Management. In particular, it is responsible for taking actions in the following topics: • Group strategy: The Board regularly reviews and discusses in particular the Group’s business portfolio including its target market, acquisition, customer and intermediaries strategy and its HR strategy; • Finance: The Board particularly approves the financial and operating plan annually, establishes guidelines for capital allocation and financial planning. Further, the Board reviews and approves the annual and interim (half year and quarterly) consolidated financial statements of the Group. Above certain thresholds, the Board approves major lending and borrowing transactions; • Structure and organization of the Group: The Board determines and regularly reviews the basic principles of the Group’s structure and major changes in the Group’s management organization including major changes of management functions. In this respect, the Board particularly discusses the Group’s corporate governance framework and its remuneration system. The Board also adopts and regularly reviews the basic principles of conduct, compliance and risk management for the Group. Further, as part of its duty to convene the shareholders’ meeting and submit proposals to the shareholders’ meeting, it discusses the dividend policy and the Board’s proposal for the payment of dividends. Within its authorities the Board also makes resolutions on capital increases and the certification of capital increases and respective amendments to the articles of incorporation; • Business Development: Above certain thresholds, the Board regularly discusses and approves acquisitions and disposals of businesses and assets, investments, new businesses, mergers, joint ventures, co-operations and restructurings of business units or books of businesses.
Governance and Nominations Committee Composition and membership: The Governance and Nominations Committee consists of at least four Board members. Currently, Tom de Swaan (Chairperson), Victor L.L. Chu, Rafael del Pino, Thomas Escher, Fred Kindle and Monica Mächler serve on this committee.
The Audit Committee Charter provides that the Audit Committee as a whole should have (i) an understanding of IFRS and financial statements, (ii) the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves, (iii) experience in preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to those of Zurich Insurance Group Ltd and the Group, or experience in actively supervising one or more persons engaged in these activities, (iv) an understanding of internal controls and procedures for financial reporting and (v) an understanding of audit committee functions.
Key tasks and responsibilities: In general, the Risk Committee: • oversees the Group’s risk management, in particular the Group’s risk tolerance, including agreed limits that the Board regards as acceptable for Zurich to bear, the aggregation of agreed limits across the Group, the measurement of adherence to agreed risk limits and the Group’s risk tolerance in relation to anticipated capital levels; • further oversees the Group-wide risk governance framework, including risk management and control, risk policies, their implementation and the risk strategy and the monitoring of operational risks; • reviews the methodologies for risk measurement and the Group’s adherence to its risk limits and reviews the performance of the risk management function; • reviews, with business management and the Group risk management function, the Group’s general policies and procedures and satisfies itself that effective systems of risk management are established and maintained; and,
• business specific risks and controls and topical deep-dives (e.g. Farmers and Asia Pacific, cyber risk and data security, regulatory risk updates).
The Group Finance and Risk Committee (GFRC) Members: Chief Financial Officer (Chair), Chief Risk Officer (Deputy Chair), Chief Investment Officer, Group General Counsel, and the Group Head of Operations.
The Audit Committee has approved a written policy on the use of external auditors for non-audit services, which sets out the rules for providing such services and related matters (including a list of prohibited services). Allowable non-audit services may include tax advice, comfort and consent letters, certifications and attestations, due diligence and audit support in proposed transactions, to the extent that such work complies with applicable legal and regulatory requirements and does not compromise the independence or objectivity of the external auditors. In order to avoid conflicts of interest, all allowable non-audit services need pre-approval from the Audit Committee (Chairman), the Chief Financial Officer, the Group Controller or the local CFO, depending on the level of the expected fee. This policy further requires, among other things, an engagement letter specifying the services to be provided.
board audit committees and, additionally, (2) regional oversight committees that oversee subsidiaries in Latin America, Asia Pacific, Middle East and parts of Europe. The subsidiary board audit committees comprise directors of the legal entities concerned, including in some instances, independent non-executive directors. In addition, assurance providers participate as attendees. The results of such reviews are reported to the Group CEO, the Risk and the Audit Committees of the Board as well as the Board, as appropriate.
1 December 31, 2012 has been restated as set out in note 1 of the Consolidated financial statements. 2 Consists of USD 54,849 gross written premiums and policy fees as well as USD 2,810 Farmers management fees and other related revenues. 3 Dividend at transaction day exchange rate in 2013 and 2012, respectively .
Report structure This Remuneration report provides all the information that is outlined in chapter five of the Directive on Information Relating to Corporate Governance of the SIX Swiss Exchange (SIX Directive) and the Swiss Code of Best Practice for Corporate Governance (“Swiss Code of Best Practice”), as amended with effect from July 1, 2009 and October 15, 2007, respectively. Also included is all the information as required by articles 663bbis and 663c paragraph 3 of the Swiss Code of Obligations and the Circular 2010/1 on minimum standards for remuneration schemes of financial institutions, issued on October 21, 2009 and further guidance issued on January 19, 2011 by the Swiss Financial Market Supervisory Authority FINMA (FINMA Circular on Remuneration Schemes).
As a consequence of the final rules in the Ordinance Against Excessive Compensation and its implementation, a new set of Articles of Incorporation will be presented for approval by the shareholders at the Annual General Meeting 2014 and the first binding vote by the shareholders on remuneration for the members of the Board and Group Executive Committee will take place in 2015.
Total fees 8 of which paid in cash of which allocated in shares 4, 5
12 As of June 16, 2012, Mr. Ackermann was allocated 1,365 shares, Mr. de Swaan was allocated 550 shares, and the other Board members were allocated 386 shares. The share price (CHF 207.10) as of June 16, 2012 was adopted to calculate the number of shares based on the fixed portion of the fee allocated in shares for the respective members. Where the value of the allocated shares did not equal the value of the portion of the fee to be allocated in shares, the difference was paid in cash.
Remuneration for former Directors No benefits (or waiver of claims) have been provided to former Directors during the year 2013, nor were any provided during the year 2012.
As in previous years, the target grants for 2013 were made on the third working day in April, i.e. on April 3, 2013. The target number of performance shares was calculated by dividing the monetary value of the grant by the share price on the day prior to the grant respectively.
in USD million, for the years ended December 31All GEC members (incl. the highest paid)
Restricted share grants There were no restricted shares outstanding as of December 31, 2013 for members of the GEC (no restricted shares were outstanding at the end of 2012).
2 The distribution of the vested options according to the grants identified in the tables “Summary of outstanding options” is shown in the table below. 3 Mr. Hogan left the function on August 1, 2013 and his employment contract terminated on October 12, 2013. 4 Mr. Nordlin, currently Chief Information Officer assumed responsibility for Group Operations on an ad interim basis succeeding Mr. Terryn effective August 14, 2013.
Performance measures The LTIP continues to be granted as performance-based target shares (Target Shares) with the vesting of these Target Shares subject to specific performance achievements over a three-year period. The performance measures will be aligned to the Group’s new strategic goals for 2014–2016. A balanced scorecard of relative TSR, NIAS return on common shareholders’ equity (NIAS ROE) and cash remittance will be used to assess the Group’s performance for vesting decisions. Each of the measures will be assessed separately over the three-year period with a one-third equal weighting. The measures will be calibrated as follows: Relative TSR position 0% vesting 50% vesting 100% vesting 150% vesting 200% vesting 13th – 18th 10th – 12th 7th – 9th 4th – 6th 1st – 3rd
2014 LTIP grant and vesting schedule To transition to a three-year cliff vesting, the 2014 LTIP grant will vest one third after two years (i.e. 2016), and two-thirds after three years (i.e. 2017). From the 2015 LTIP grants onwards, three-year cliff-vesting for 100 percent of the grant will apply.
The performance in the core businesses was achieved through continued focus on profitability, underpinned by the sustained execution of the Group’s product, underwriting and pricing strategies. The result also benefited from lower major catastrophe events in 2013, though this benefit was partly offset by a higher level of large and weather-related losses. Overall the performance has more than absorbed the impact of the decrease in investment income resulting from persistent low investment yields.
• Global Life gross written premiums, policy fees and insurance deposits decreased by USD 3.2 billion to USD 27.1 billion, or by 10 percent both in U.S. dollar terms and on a local currency basis. Growth in gross written premiums in the higher-margin protection business was more than offset by an expected reduction in insurance deposits in the UK, due to discontinuation of low-margin single premium products in Private Banking Client Solutions.
The net underwriting result increased by USD 316 million to USD 640 million, which was reflected in the improvement in the combined ratio of 2.8 percentage points to 94.5 percent. The improvement in the loss ratio of 2.5 percentage points stemmed from continued improvements in the underlying loss ratio, particularly in Germany, Italy, the UK and Ireland. This was a result of sustained pricing and underwriting actions and a higher level of favorable development of reserves established in prior years, which in 2012 included the significant reserve strengthening in Germany. These improvements were partly offset by an increase in weather-related losses, including floods in Europe and individual large losses. The expense ratio improved by 0.3 percentage points, reflecting lower commissions and a focus on expense management.
Gross written premiums and policy fees increased by USD 97 million to USD 5.7 billion, or by 2 percent in U.S. dollar terms and 12 percent on a local currency basis. Growth in Latin America of 18 percent on a local currency basis was generated mainly in Mexico and Brazil. Asia-Pacific achieved an increase of 8 percent on a local currency basis, with particularly strong growth in Australia, Japan and Hong Kong. Premiums in the Middle East and Africa increased by 2 percent on a local currency basis.
Net policyholder flows 3 (2,694) 1,431 nm 1 As of December 31, 2013 and December 31, 2012, respectively. Restated as set out in note 1 of the Consolidated financial statements. 2 Assets under management comprise Group and unit-linked investments that are included in the Global Life balance sheet plus assets that are managed by third parties, on which fees are earned.
Gross written premiums and policy fees increased by USD 326 million to USD 13.9 billion, or by 2 percent in U.S. dollar terms and 3 percent on a local currency basis compared with 2012, benefiting from increased volumes of protection business, particularly in Latin America.
The loss ratio improved by 3.5 percentage points compared with 2012. This improvement was largely due to a reduced underlying loss ratio reflecting better underwriting results in the Farmers Exchanges. Weather-related losses remained above historical levels, but were slightly lower compared with 2012. The expense ratio, based on ceded reinsurance commission rates payable to Farmers Exchanges, remained flat.
Gross written premiums 18,643 18,935 (2%) Gross earned premiums 18,757 18,703 –
Real estate held for investment 8,745 8,561 3,661 3,401 Mortgage loans 9,798 10,519 – –
Debt securities, which are invested to match the Group’s insurance liability profiles, returned 0.5 percent. Equity securities and other investments returned 11.7 percent and 1.9 percent, respectively.
Details of reserve developments emerging from reserves established in prior years are set out in note 8 of the Consolidated financial statements.
3 Includes reserves for future life policyholders’ benefits, the net amounts of which were USD 78.2 billion and USD 76.7 billion and policyholders’ contract deposits and other funds, the net amounts of which were USD 17.8 billion and USD 17.6 billion as of December 31, 2013 and 2012, respectively.
Net other recognized income and expenses decreased primarily as a result of a decrease in net unrealized gains on available-for-sale investments of USD 2.8 billion following the slight upturn in interest rates, negative cumulative foreign currency translation adjustments of USD 986 million including USD 718 million relating to the dividend, and net actuarial losses on pension plans of USD 367 million. The total payment of USD 2.7 billion for the dividend of CHF 17.00 per share, approved by shareholders at the Annual General Meeting on April 4, 2013 was paid out of the capital contribution reserve, with USD 1.9 billion shown as dividends and USD 718 million included in other comprehensive income as a negative cumulative foreign currency translation adjustment.
External interactions The Group maintains close working relationship with such stakeholders as external organizations and expert groups.
The Zurich Economic Capital Model quantifies the internal capital for insurance, market, credit and operational risks. See “Internal model capital adequacy (unaudited)” for more information.
Although the Group’s analysis has shown its exposures outside North America are lower, in large part due to government-provided pools; the Group has extended its approach to improve its view of the risk for countries with the next greatest potential net exposure. The Group periodically monitors accumulation limits for these and other areas, and continues to refine its analytics.
Table 3 shows the Group’s concentration of risk within the life business by region and line of business based on reserves for life insurance on a net basis. The Group’s exposure to life insurance risks varies significantly by geographic region and line of business and may change over time. See note 8 of the Consolidated financial statements for additional information on reserves for insurance contracts.
Reinsurance for general insurance and life insurance The Group’s objectives for purchasing reinsurance are to provide market-leading capacity for customers while protecting the balance sheet and optimizing the Group’s capital efficiency. The Group follows a centralized purchasing strategy for both segments, General Insurance and Global Life, and bundles programs, where appropriate, to benefit from diversification and economies of scale. These efforts for General Insurance have led to a decreasing expenditure for treaty reinsurance while growth in the General Insurance Global Corporate business has increased premium cessions to captives and co-reinsurers, resulting in an overall stable cession rate.
* This USD 150 million cover is the same Combined Global Catastrophe Occurrence / Aggregate Treaty presiding over the Global Catastrophe Treaty. This cover can be used only once, either for aggregated losses or for an individual event.
Table 6.b in USD millions, as of December 31, 2012Economic interest rate sensitivities for the rest of the businesses – prior period
Table 11.b in USD millions, as of December 31, 2012Economic credit spread sensitivities for the Global Life business – prior period
Table 12.a in USD millions, as of December 31, 2013Economic credit spread sensitivities for the rest of the businesses – current period
The Group’s Corporate Reinsurance Security Committee manages the credit quality of cessions and reinsurance assets. The Group typically cedes new business to authorized reinsurers with a minimum rating of “A–.” 59 percent and 58 percent of the business ceded to reinsurers that fall below “A–” or are not rated is collateralized, as of December 31, 2013 and 2012, respectively. Of these percentages, 55 percent and 50 percent are ceded to captive insurance companies, in 2013 and 2012, respectively.
Addressing the risk of claims and non-claims fraud continues to be of importance. In 2013, the Group continued its global anti-fraud initiative to further improve the Group’s ability to prevent, detect and respond to fraud. While claims fraud is calculated as part of insurance risk and non-claims fraud is calculated as part of operational risk for risk-based capital, both are part of the common framework for assessing and managing operational risks.
Regulatory and Tax Compliance: This risk cluster relates to possible non-compliance with applicable laws and regulations, leading to a range of consequences. It includes fines and penalties, litigation, compensation to policyholders, increased regulatory scrutiny, financial losses and increased cost of compliance, as well as consequences from a possible failure to comply with tax requirements.
Net income after taxes 4,259 3,975 attributable to non-controlling interests 231 89 attributable to shareholders 4,028 3,887 in USD
in USD millions, for the years ended December 31 in USD millions, as of December 31Cash and cash equivalents
Net changes in capitalization of non-controlling interests – – – – – – – – (216) (216) Balance as of December 31, 2012, as restated 11 8,172 4,523 238 (3,022) 180 24,403 34,505 2,369 36,874
Balance as of December 31, 2012, as previously reported 11 8,172 4,523 238 (3,022) 180 24,391 34,494 2,368 36,862 Total adjustments due to restatement – – – – – – 11 11 1 12 Balance as of December 31, 2012, as restated 11 8,172 4,523 238 (3,022) 180 24,403 34,505 2,369 36,874 Issuance of share capital 1 – 152 – – – – – 152 – 152
Table 1.1 summarizes the principal exchange rates used for translation purposes. Net gains/(losses) on foreign currency transactions included in the consolidated income statements were USD 37 million and USD 79 million for the years ended December 31, 2013 and 2012, respectively. Foreign currency exchange forward and swap gains/(losses) included in these amounts were USD (58) million and USD 130 million for the years ended December 31, 2013 and 2012, respectively.
When there is objective evidence that an available-for-sale equity security is impaired, the cumulative loss that had been recognized directly in OCI, including any portion attributable to foreign currency changes, is reclassified to income as an impairment loss. The impairment loss is the difference between the weighted-average acquisition cost (less any impairment loss on that security previously recognized in income) and the current fair value. Impairment losses on equity securities are not reversed through income, instead, when the fair value of a previously impaired equity security increases, the resulting unrealized gains are recognized in OCI. Any further decrease in fair value subsequent to recognition of an impairment loss is also recognized in income as impairment loss, together with any portion attributable to foreign currency changes, until the equity security is derecognized.
The recoverable amount of the intangible assets with an indefinite life related to the Farmers segment (i.e. attorney-infact (AIF) relationships and goodwill) is determined on the basis of value-in-use calculations. These calculations use cash flow projections based on business plans which are approved by management and typically cover a three- year period. The basis for determining the values assigned to the key assumptions are current market trends and earnings projections.
Distribution agreements The recoverable amount for General Insurance intangible assets reflecting distribution agreements is determined on the basis of value-in-use calculations. These calculations use cash flow projections in line with the terms and conditions of the underlying distribution agreements. For Global Life distribution agreements, the recoverable amount is determined based on projected cash flows derived from the new business calculation and discount rates consistent with the data used for actuarial valuations.
Banco Sabadell S.A. entities in Spain 1,697 11.0 9.0 2.0 2.5 Banco Santander S.A. entities in Latin America 1,717 12.6 – 42.0 7.8 – 20.1 n / a n / a
See notes 3, 6, 15, 16 and 17 for further information on impairment of assets.
Zurich Insurance GroupAnnual Report 2013Financial information210 d) Deferred taxes Deferred tax assets are recognized if sufficient future taxable income, including income from the reversal of existing taxable temporary differences and available tax planning strategies, is available for realization. The utilization of deferred tax assets arising from temporary differences depends on the generation of sufficient taxable profits in the period in which the underlying asset or liability is recovered or settled. The utilization of deferred tax assets arising from unused tax losses or tax credits depends on the generation of sufficient taxable profits before the unused tax losses or tax credits expire. As of each balance sheet date, management evaluates the recoverability of deferred tax assets and if it is considered probable, that all or a portion of the deferred tax asset will not be utilized, then a valuation allowance is recognized.
Table 6.1a in USD millions, for the years ended December 31Net investment result for total investments
Table 7.1 shows the fair value and notional amounts for instruments which do not qualify for hedge accounting as of December 31, 2013 and 2012, respectively. Whilst these notional amounts express the extent of the Group’s involvement in derivative transactions, they are not, however, representative of amounts at risk. Fair values for derivative financial instruments are included in the consolidated balance sheets in receivables and other assets, and other liabilities.
Cash flow hedges Designated cash flow hedges, such as options on interest rate swaps are used to protect the Group against variability of future cash flows due to changes in interest rates associated with expected future purchases of debt securities (during the years 2016, 2021 and 2026) required for certain life insurance policies. The effective portion of the gains and losses on these swaps are initially recognized in other comprehensive income. Subsequently the gains or losses will be recycled to income until December 31, 2036. The gains and losses relating to the ineffective portion of these hedges are recognized immediately in income within net capital gains/losses on investments and impairments.
Fin an cial info rm atio n 9. Liabilities for investment contracts
As of December 31, 2013 and 2012, deferred policy acquisition costs related to non-controlling interests were USD 614 million and USD 572 million, respectively.
As of January 1 770 824 Origination costs deferred 63 79
Administrative and other operating expense 8,804 8,654 Other underwriting and policy acquisition expenses 1 1,020 1,020 Net unallocated loss adjustment expenses 2 1,725 1,711 Other investment expenses for Group investments 3 125 132 of which: Personnel and other related expenses 6,017 6,021 Amortization and impairments of intangible assets 1,011 874 Depreciation and impairments of property and equipment 186 210 Building and infrastructure expenses 582 614 Brand and marketing expenses 473 438 Life recurring commission 380 365 Asset and other non-income taxes 150 131 IT expenses 1,182 1,165 Restructuring costs 40 210 External professional services expenses 896 982 Foreign currency translation 38 (4)
Gross carrying value as of December 31, 2013 2,190 2,918 4,364 1,025 4,720 226 15,443
Table 18.2 shows the maturity schedule of other financial liabilities as of December 31, 2013 and 2012, respectively.
Current tax receivables 1,084 1,198 Current tax payables (1,246) (1,101) Net current tax receivables/(payables) (162) 96
The decrease was due to the maturities in September 2013 of 3.75% CHF 500 million notes and 3.25% USD 750 million notes issued by Zurich Insurance Company Ltd and Zurich Finance (Luxembourg) S.A., respectively. This decrease was partially offset by the placement of 6 and 10-year notes for a combined amount of CHF 500 million in September 2013, issued by Zurich Insurance Company Ltd under the Group’s EMTN Programme. The coupon for the 6-year tranche was set at 1.125% and at 1.875% for the 10-year tranche. The remaining increase was due to the translation effects of the U.S. dollar against the currencies in which the notes were issued.
Authorized, contingent and issued share capital As of December 31, 2012 17,129,526 171,295,259 0.10 a) Issued share capital The issued share capital of Zurich Insurance Group Ltd as of December 31, 2013 amounts to CHF 14,890,322.20, divided into 148,903,222 fully paid registered shares with a nominal value of CHF 0.10 each.
Zurich Insurance GroupAnnual Report 2013Financial information252 also taking into account local pension laws. The investment strategies aim to mitigate asset-liability mismatches in the long run.
States Germany 1 In the UK part of the liability is linked to the inflation measure of the Retail Prices Index (RPI), which is assumed to be 1.0 percent and 0.8 percent higher than the Consumer Prices Index (CPI) as of December 31, 2013 and 2012, respectively.
Tables 22.5a and 22.5b set out the life expectancies used in the valuation of the Group’s major plans. The mortality assumptions in each country have been based on mortality tables in accordance with typical practice in that market.
Table 22.7 sets out the sensitivity of the defined benefit obligations (DBO) to the key actuarial assumptions. The effect on DBO shown allows for an alternative value for each assumption while the other actuarial assumptions remain unchanged. Whilst this table illustrates the overall impact on DBO of the changes shown, the significance of the impact and the range of reasonably possible alternative assumptions may differ between the different plans that comprise the total DBO; in particular the plans differ in benefit design, currency and average term, meaning that different assumptions have different levels of significance for different plans. The sensitivity analysis is intended to illustrate the inherent uncertainty in the evaluation of the DBO under market conditions at the measurement date; its results cannot be extrapolated due to non-linear effects that changes in the key actuarial assumptions may have on the overall total DBO. Furthermore, the analysis does not indicate a probability of such changes occurring and it does not necessarily represent the Group’s view of expected future changes in DBO. Any management actions that may be taken to mitigate the inherent risks in the post-employment defined benefit plans are not reflected in this analysis.
The Group also operates the profit-sharing element of the Share Incentive Plan (Reward Shares) which was launched in 2004 with annual share allocations being made in May each year subject to business performance. The awards are based on the business operating profit (BOP) after tax for the year, for the business unit of each participating employee. Individual awards are subject to a maximum of 5 percent of a participant’s base salary (before any flexible benefit adjustments) with an overall maximum of GBP 3,000. The total number of participating employees in the Reward Share element of the plans as of December 31, 2013 and 2012 was 5,201 and 5,289 respectively.
Discounted cash flow models are used for mortgage loans and other loans. The discount yields in these models use either current interest rates charged by the Group on these instruments or calculated rates that reflect the return a market participant would expect to receive on instruments with similar remaining maturities, cash flow patterns, currencies, credit risk, collateral and interest rates. Such instruments are categorized within level 3.
• Reinsurers’ share of reserves and reserves for insurance contracts fair value option. The fair values are determined using discounted cash flows models. The discount factors used are based on derived rates for LIBOR swap forwards, spreads to US Treasuries and spreads to US Corporate A or higher rated bond segments for Financials, Industrials and Utilities. The liability projected cash flows use contractual information for premiums, benefits and agent commissions, administrative expenses under third party administrative service agreements and best estimate parameters for policy decrements. The primary unobservable inputs are the policy decrement assumptions used in projecting cash flows. These include disability claim parameters for incidence and termination (whether for recovery or death) and lapse rates.
Within level 3, the Group also classified investments in private equity funds, certain hedge funds and other securities which are not quoted on an exchange amounting to USD 3,175 million and USD 64 million for Group investments and investments for unit-linked contracts, respectively, as of December 31, 2013.
Based on the results for 2013, the Farmers Exchanges share of ceded premiums earned and commissions were USD 3,431 million and USD 1,098 million, respectively, and recoveries totaled USD 2,349 million, for the year ended December 31, 2013.
The Group pursues a customer-centric strategy and is managed on a matrix basis, reflecting both businesses and geography. The Group’s operating segments have been identified on the basis of the businesses operated by the Group and how these are strategically managed to offer different products and services to specific customer groups. Segment information is presented accordingly. The Group’s reportable segments are as follows: General Insurance provides a variety of motor, home and commercial products and services for individuals, as well as small and large businesses.
Net investment income on Group investments 2,217 2,516 3,895 3,991 107 124 315 396 309 413 (602) (658) 6,240 6,782 Net capital gains/(losses) and impairments on Group investments 167 71 595 842 – – – – (748) (24) – – 14 889
Revenues/(expenses) not included in BOP: Net capital gains/(losses) on investments and impairments, net of policyholder allocation 480 1,051 1 352 6 18 645 (149) 12 41 1,144 1,312 Net gain/(loss) on divestments of businesses – (38) – 3 – – (1) 1 – – (1) (34)
Net income/(expense) on intercompany loans (12) (21) (2) (2) – – 14 23 – – – – Impairments of goodwill (209) – – – – – – – – – (209) – Change in estimates of earn-out liabilities (50) – 35 – – – – – – – (16) –
Reserves for losses and loss adjustment expenses, gross 65,629 66,542 – – 1,612 1,580 27 27 1,119 1,969 (75) (131) 68,312 69,986 Reserves for unearned premiums, gross 16,409 16,023 – – 1,208 1,262 3 4 17 20 (21) (9) 17,616 17,300 Future life policyholders’ benefits, gross 77 96 80,302 78,718 – – 5 6 4,107 5,020 (14) (33) 84,476 83,807 Policyholders’ contract deposits and other funds, gross 33 32 17,801 17,572 – – – – 2,328 2,420 – – 20,162 20,024 Reserves for unit-linked contracts, gross – – 63,028 62,243 – – – – 11,844 11,874 – – 74,873 74,117
Business operating profit before non-controlling interests 173 243 455 277 803 831 80 133 (7) – – – 1,504 1,484 1 Europe includes approximately USD 521 million and USD 603 million of gross written premiums and future life policyholders‘ benefits for certain universal life-type contracts in the Group’s Spanish operations for the years ended December 31, 2013 and 2012, respectively (see note 3).
Table 28.10 in USD millions, for the years ended December 31Farmers – Overview
Group. 5 Listed on the Johannesburg Stock Exchange. On December 31, 2013, the company had a market capitalization of ZAR 3.2 billion (ISIN Number ZAE000094496). 6 The results of the operating activities are included in the General Insurance, Global Life and Farmers segments, whereas the headquarter’s activities are included in
Dividends paid to non-controlling interests 181 6 44 26 1 Includes reserves for premium refunds, liabilities for investment contracts, deposits received under ceded reinsurance contracts, deferred front-end fees and reserves for insurance contracts.
New business value of USD 1,251 million increased by USD 361 million or 41 percent compared with 2012. Including the new business value of USD 195 million, not reflected in the 2012 results, for the insurance businesses acquired from Banco Santander S.A. (Zurich Santander) and Zurich Insurance Malaysia Berhad (ZIMB) and excluding the impact in 2012 from the Social Security business in Chile, new business value increased by USD 185 million or 20 percent on a local currency basis. This increase was driven by generally improved volumes and profitability in some European and Asia-Pacific and Middle East markets.
Expected free surplus generation includes cash strain from new business net of non-controlling interests, expected transfer to free surplus and expected contribution from in-force to free surplus. This was USD 532 million in 2013. The cash strain on new business of USD 1,400 million results from the combination of initial cash consumption of USD 723 million and the increase in required capital of USD 677 million. The expected transfer to shareholders’ net assets increased free surplus by USD 1,674 million and was driven by expected profits of USD 1,254 million and the release of required capital of USD 419 million. The expected contribution from in-force to free surplus was USD 258 million.
Variances arising on operating and economic assumptions increased free surplus by USD 375 million. Variances represent the difference between actual experience during the period and that implied by assumptions on the emergence of free surplus, and actual market development over the period.
In Rest of Europe, APE increased by USD 29 million or 13 percent on a local currency basis. However, new business value decreased by USD 1 million as a result of lower margins on savings business in Italy.
Expected contribution at reference rate The expected contribution at reference rate is the projected change in embedded value over the year using risk free investment returns applicable at the start of the year. The expected contribution at reference rate was USD 199 million.
New business amounts in the Embedded value report are reported before the effects of non-controlling interests. New business value is reduced by USD 190 million and USD 46 million after the effects of non-controlling interests in 2013 and 2012, respectively.
Germany has followed an approach where liability model points are set up in advance, using the structure of a previous run, and then projected to the valuation date by scaling to match the expected balance sheet figures. New business model points are determined quarterly. For each quarter, new business model points are scaled to the expected APE in the quarter.
The risk free yield curve assumptions are based on the swap curve in each major currency (U.S. dollars, euro, British pounds and Swiss francs). For liabilities where payouts are either independent or move linearly with markets,
We have audited the Embedded value report of Zurich Insurance Group Ltd (“the Company”) included on pages 305 to 338 of the Annual Report 2013 for the year ended December 31, 2013. The embedded value information included in the Embedded value report has been prepared in accordance with the Market Consistent Embedded Value (“MCEV”) Principles and Guidance issued by the European Insurance CFO Forum, as described on pages 324 to 329.
Basis of preparation Without modifying our opinion, we draw attention to sections 12 and 13 of the Embedded value report, which describe the basis of embedded value methodology and embedded value assumptions. The Embedded value report is prepared in compliance with the MCEV Principles and Guidance referred to above and as a result, may not be suitable for another purpose. This report does not extend to any financial statements of Zurich Insurance Group Ltd.
Revenues Interest income 3 307,361 100,581 Dividend income 2,200,000 2,400,000 Other financial income 4 46,583 79,495
2. Summary of significant accounting policies a) Exchange rates Unless otherwise stated, assets and liabilities expressed in currencies other than Swiss francs are translated at year end exchange rates. Revenues and expenses are translated using the exchange rate at the date of the transaction. Net unrealized exchange losses are recorded in the income statements and net unrealized exchange gains are deferred until realized.
Zurich Insurance Company Ltd 11,088,466 100.00 11,088,466 100.00 Zurich Financial Services EUB Holdings Ltd 372,936 99.90 532,936 99.90 1 in CHF thousands
During the years 2013 and 2012, a total of 603,099 shares and 914,301 shares, respectively, were issued to employees out of the contingent capital.
Additions during the year – – 120 19 Sales during the year (27,743) (6,768) (25,117) (6,105)
Share and share option holdings of the members of the GEC The following table sets out the actual share and share option holdings of the members of the GEC as of December 31, 2013 and 2012. In addition to any shares acquired in the market, the numbers include vested shares, whether salesrestricted or not, and vested share options received under the Group’s Long-Term Incentive Plan. However, the table does not include the share interests of the members of the GEC through their participation in the currently unvested performance shares and unvested restricted shares.
Zurich Insurance Group LtdDJ Titans Insurance 30 Index Source: Thomson Reuters
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Latin America Zurich operates in Argentina, Brazil, Chile, Mexico, Uruguay and Venezuela.