Zurich Financial Services Merrill Lynch Banking & Insurance Conference: Growth Opportunities Post Crisis?

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1 Zurich Financial Services Merrill Lynch Banking & Insurance Conference: Growth Opportunities Post Crisis? Dieter Wemmer Chief Financial Officer London,

2 Disclaimer and cautionary statement Certain statements in this document are forward-looking statements, including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Forward-looking statements include statements regarding our targeted profit improvement, return on equity targets, expense reductions, pricing conditions, dividend policy and underwriting claims improvements. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results and Zurich Financial Services plans and objectives to differ materially from those expressed or implied in the forward looking statements (or from past results). Factors such as (i) general economic conditions and competitive factors, particularly in our key markets; (ii) performance of financial markets; (iii) levels of interest rates and currency exchange rates; (iv) frequency, severity and development of insured claims events; (v) mortality and morbidity experience; (vi) policy renewal and lapse rates; and (vii) changes in laws and regulations and in the policies of regulators may have a direct bearing on Zurich Financial Services results of operations and on whether Zurich Financial Services will achieve its targets. Zurich Financial Services undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. This communication is directed only at persons who (i) have professional experience in matters relating to investments or (ii) are persons falling within Article 49()(a) to (d) (high net worth companies, unincorporated associations, etc) of The Financial Services and Markets Act 000 (Financial Promotion) Order 001 (as amended) or to whom it may otherwise lawfully be communicated (all such persons together being referred to as relevant persons). This communication must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons. It should be noted, that past performance is not a guide to future performance. Please also note that interim results are not necessarily indicative of the full year results. Persons requiring advice should consult an independent adviser. THE OFFER TO REPURCHASE SECURITIES OF ZURICH FINANCIAL SERVICES IS NOT MADE IN THE UNITED STATES OF AMERICA AND TO U.S. PERSONS AND MAY BE ACCEPTED ONLY BY NON-U.S. PERSONS AND OUTSIDE THE UNITED STATES. OFFERING MATERIALS WITH RESPECT TO THIS OFFER MAY NOT BE DISTRIBUTED IN OR SENT TO THE UNITED STATES AND MAY NOT BE USED FOR THE PURPOSE OF SOLICITATION OF AN OFFER TO PURCHASE OR SELL ANY SECURITIES IN THE UNITED STATES.

3 Zurich delivered strong and resilient results, also in challenging markets Business Operating Profit in USD millions 7'000 6'000 5'000 4'000 3'000 '000 1'000 0 Shareholders equity in USD millions 30'000 5'000 0'000 15'000 18'934 1'016 0'515 8'804 6'796 5' HY08 1 Business operating profit (after tax) return on common shareholders equity Restated '316 '988 3'947 6'035 6'614 3'84 3' HY07 HY08 BOPaT-ROE 1 0% 18% 16% 14% 1% 10% 8% 6% 4% % 0% Diluted earnings per share in CHF % % 13.6% 1% target % 18.7% 19.1% 19.9% HY07 HY HY07 HY08 16% target 3

4 Zurich share outperformed in the last 5 years 300% 50% 00% 150% 100% 50% DJ Ins EU S&P500 US P&C DJ TITANS INSURANCE EURO STOXX 50 Zurich Source: Datastream, as of October, 008 4

5 Our business principles define what Zurich represents Profitable Growth Operational Transformation Value to Customers and Shareholders Systematic Risk & Capital Management Well-considered Investment Management 5

6 Systematic approach to risk & capital management is a fundamental prerequisite Graph taken from Zurich Risk Modeling Platform Farmers Mgmt Services 1 Other 16% 7% Global Life 0% General Insurance 56% Total RBC estimate: USD 3 billion 10% 1% 5% 35% 10% 30% 7% % Market/ALM risk Investment credit risk Business risk Operational risk P&R risk 3 Re-ins credit risk Life insurance risk Natural cat risk by segment by risk type 1 Total allocated capital = USD 3 bn RBC plus USD bn direct allocation to Farmers Management Services, estimate as of Jan. 1, 008 Includes alternative investments managed by Investment Management 3 Premium & reserving risk 6

7 Our investment portfolio is diversified, matched by design and with balanced risk/return Zurich s group investments as of June 30, 008 Asset allocation (%) Real Estate Equities Cash, short term Hedge Funds / Private Equity.5 Fixed income 78. 7

8 Operational Transformation taking The Zurich Way into the next stage Loosely Connected Globally Consistent Regionally/Globally Integrated Standardization/ Integration Many ways of doing the same Standardization Integration Time The Zurich Way Global Profit Improvement Program The Zurich Way USD 1bn USD 540m USD 500m USD 500m USD 700m USD 800m Total planned benefits 008 to 010: USD.4 billion Operational Transformation

9 Operational transformation creates globally integrated business models Example ZIS 1 International / Expatriates APE 1 in USD millions New customers Out of every 10 new customers: Asian/Chinese Western South Asian/Indian Middle Eastern Products / propositions ZIS 1 hub Isle of Man ZIS 1 hub Dubai GL central desks UK Isle of Man Dublin Jersey Switzerland Sweden Dubai Bahrain Qatar Abu Dhabi Argentina Singapore Hong Kong Taiwan Channel centers of excellence IFA training The growing ZIS platform is serving geographically diverse and mobile customers from central manufacturing hubs 1 Zurich International Solutions domiciled in the Isle of Man (excluding Corporate Life business) 9

10 Profitable growth: Zurich has a differentiated focus to unlock and grow business value Focus on volume growth Farmers Global Life EGI IB NAC GC Legend for GI BDs IB International Businesses EGI Europe General Insurance GC Global Corporate NAC North America Commercial Focus on margin enhancement 10

11 Zurich has achieved selective profitable growth, also in challenging markets Example HY08 Focus on volume growth 1 Growth at Half Year 008 9% Farmers 9% Global Life EGI 6% IB Focus on margin enhancement NAC GC Legend for GI BDs IB International Businesses EGI Europe General Insurance GC Global Corporate NAC North America Commercial 1 Volume growth measured as growth in fee income for FMS, growth in APE in local currency for Global Life and GWP growth in local currency for General Insurance 9% -% -6% 11

12 Global Life s strategic direction Example Bancassurance in Spain Global distribution channels Global propositions Countries Bancassurance IFA/Brokers Tied Agents Private Banking Clients Corporate Life International / Expats Long-term strategic banc-assurance agreements in Spain with Banco Sabadell and Caixa Sabadell. Zurich to become the nd largest insurer in Spain, one of the most attractive insurance markets in Europe. Both transactions already closed in Q3-08 and, therefore, will contribute to FY08 results. Double digit growth HY08 over HY07, ahead of the average market growth of 9%. Integration has started and TZW methodology is being applied. 1

13 EGI: Strategic decisions have delivered profitable growth and improved performance in Italy Number of Tied Agents HY08 +8% Zurich Way Initiatives New underwriting process Tied agents acquisition Tied agents sales excellence program Cross sell initiatives Motor Third Party Liability Customer Satisfaction Index st 1st st 1st 6th nd 1st Annual GWP growth 3 (in %) HY08 1 Local currency 3 Source: Databank Based on local statutory numbers Zurich Market 13

14 NAC: Delivery of margin enhancement through rebalancing market baskets Our businesses is divided into 68 market baskets for making capital allocation decisions Analyze performance using two lenses: - Margin on premium (BOP/NEP) - Return on Risk-Based Capital (RBC) Balance capital intensity with profitability Grow and shrink baskets to optimize return per unit of risk Continually review and reshape the business by growing or shrinking into the most attractive portfolio Rigorously execute segment contraction or growth plans Scout market for new opportunities Force rank businesses to balance capital intensity with operating profit Margin on premium Lower Higher Lower Market Basket Higher Return on risk based capital 14

15 Farmers 1 : A leader in US Personal Lines in core states with market-beating premium growth Farmers All Lines Market Share 4.9% market share (core states) Top 5 Top 10 Top 5 ECE 1 Independent agent states Source: AM Best % market share (ECE 3 states) Top 10 US Personal Lines Insurers Market Company share (%) State Farm Group 18.8 Allstate Insurance Group 11.5 Farmers Exchanges Progressive Insurance Group 5.4 Berkshire Hathaway Ins (GEICO) 5.0 Nationwide Group 4.7 USAA Group 3.8 Liberty Mutual Ins. Companies.7 Travelers Insurance Companies.7 American Family Insurance. Total Top Zurich Financial Services has no ownership interest in the Farmers Exchanges. Farmers Group, Inc., a wholly owned subsidiary of the Group, provides management services to the Farmers Exchanges and receives fees for its services. Personal Lines includes Private Passenger Auto and Homeowners Multi-Peril Premiums ; Source: AM Best 006 Direct Written Premiums, Market Share Report 3 East Coast Expansion 15

16 Zurich summary Profitable Growth Operational Transformation Value to Customers and Shareholders Systematic Risk & Capital Management Well-considered Investment Management Zurich is a well managed, transparent, diversified, and profitably growing portfolio of insurance risks. 16

17 Q&A 17