Zurich reports business operating profit of USD 2.9 billion in 2015 and proposes dividend of CHF 17 per share

CEO a.i. on annual results

Tom de Swaan discusses results and dividend

Segment performance
(for the year ended December 31, 2015)

General Insurance

General Insurance BOP fell by USD 2.1 billion to USD 864 million, 71% in U.S. dollar terms or 70% in local currency terms, as the business recorded an operating loss of USD 120 million in the fourth quarter. The combined ratio deteriorated 6.7 percentage points to 103.6%.

The result was partly due to large losses and natural catastrophe claims, including severe flooding in the UK and Ireland in December and USD 275 million related to the explosions in the port of Tianjin in August. As reported with third quarter results, the business also identified issues in areas such as U.S. auto-liability, Global Corporate property and North America Commercial construction liability. These are being urgently addressed, with targeted measures to reduce earnings volatility and re-underwrite or exit under-performing portfolios.

Gross written premiums and policy fees fell by USD 2.3 billion to USD 34.0 billion, but were up 3% on a local currency basis. This reflected organic growth and an increase in new business through captives in North America Commercial, an increase in premiums in Latin America due to inflation and a new distribution agreement in Brazil. Global Corporate’s gross written premiums and policy fees were broadly similar to the prior year. EMEA was slightly lower in local currency terms, but adjusting for the sale of the retail market business in Russia in 2014 and the exit of a business in the Netherlands in 2015, premium volumes increased.

The business continued to make progress in key areas of its strategy. Successes include the return to profitability of the South African business, and measures to improve the geographic footprint of General Insurance and focus on profitable lines of business. This includes the decision in November to stop writing new general insurance business for retail and commercial customers in the Middle East and exit those lines by the end of 2016 or as soon as possible thereafter.

Global Life

Global Life BOP was USD 1.3 billion, up 2% in U.S. dollar terms or 16% on a local currency basis, as the relative strength of the U.S. currency masked improved operating profits in all markets. Gross written premiums, policy fees and insurance deposits fell by USD 2.8 billion to USD 29.0 billion, or 9% in U.S. dollar terms, but rose 6% in local currency, in part due to increased sales of individual savings products in Italy and Spain, and of protection products through Zurich Santander in Latin America.

Bank joint ventures continued to show steady growth throughout the year and Global Life has already achieved its 2016 goal of a run-rate improvement in BOP of more than USD 80 million from in-force management initiatives.

Structural actions such as the sale of Seven Investment Management and the UK annuities book to Rothesay Life have helped to generate cash remittances of USD 900 million, well ahead of expectation. In addition, Global Life closed its Singapore business to new customers in December.

Farmers

Farmers BOP declined 10% to USD 1.4 billion, largely due to underwriting losses in Farmers Re and lower participation in the reinsurance agreements with the Farmers Exchanges⁶. Farmers Management Services’ business operating profit fell by USD 23 million to USD 1.4 billion, primarily due to an unfavorable fluctuation in the mark-to-market valuation of certain employee benefits and the gain on the sale of the former headquarter buildings in the prior year.

An increase in auto claims costs across the industry negatively affected the combined ratio of both the Farmers Exchanges and Farmers Re.

Despite these challenges, Farmers Exchanges have continued to make good progress in the execution of their strategy, with improved customer satisfaction and retention rates. The Farmers Exchanges also saw continued growth in their agency network, which increased by around 300 agents to 13,500.

The Non-Core Businesses, which comprise run-off portfolios that are managed with the intention of proactively reducing risk and releasing capital, reported a business operating profit of USD 51 million, compared to a loss of USD 227 million in the prior year. This is largely due to the release of long-term reserves due to a product-related buy-back program and more favorable reserves adjustments than in the prior year.

In Other Operating Businesses, the holding and financing business operating loss fell by USD 240 million to USD 720 million, primarily due to lower interest expenses on debt refinanced in 2014 and 2015, currency gains and lower operating losses from the Group’s headquarters.

The net investment result on Group investments, which includes net investment income, realized capital gains and losses and impairments, contributed USD 7.5 billion to the Group's total revenues for the year ended December 31, 2015, a net return of 3.8%. The total return on Group investments, which in addition to the net investment result includes changes in unrealized gains/(losses) reported in shareholder's equity on investments classified as 'available-for-sale', was 1.7%, compared with 8.6% in 2014. The decline in in the total return was mainly the result of rising bond yields, widening credit spreads and an overall decline in equity markets in 2015.

Subject to shareholder approval at the AGM of March 30, 2016, the proposed 2015 dividend will be paid from Zurich Insurance Group Ltd’s capital contribution reserves.

Financial highlights (unaudited)

The following table presents the summarized consolidated results of the Group for the year ended December 31, 2015 and 2014, and the financial position as of December 31, 2015 and December 31, 2014, respectively. All amounts are shown in U.S. dollars and rounded to the nearest million unless otherwise stated, with the consequence that the rounded amounts may not add to the rounded total in all cases. All ratios and variances are calculated using the underlying amounts rather than the rounded amounts. This document should be read in conjunction with the Annual Report 2015 for the Zurich Insurance Group and with its Consolidated financial statements 2015. In addition to the figures stated in accordance with International Financial Reporting Standards (IFRS), the Group uses business operating profit (BOP), new business measures and other performance indicators to enhance the understanding of its results. Details of these additional measures are set out in the separately published Glossary. These should be viewed as complementary to, and not as substitutes for the IFRS figures.