Zurich Posts $ 3.9 Billion Net Income; Farmers GWP up 24% to $4.4 Billion

February 14, 2013

The Zurich Insurance Group reported a business operating profit (BOP) of $4.1 billion and net income attributable to shareholders (NIAS) of $3.9 billion for the year ended December 31, 2012.

Zurich’s report gave the following highlights for 2012:
— NIAS* of $3.9 billion, up 3 percent compared with 2011, Q4 NIAS of $983 million, up 82 percent compared with prior year
— BOP* of $4.1 billion, down 4 percent compared with 2011, Q4 BOP of $569 million, down 42 percent compared with prior year
— Combined ratio of 98.4 percent, compared with 98.9 percent in 2011
— BOPAT ROE 9.3 percent, down from 10.2 percent in 2011; NIAS ROE of 11.8 percent comparable to last year
— Pricing and portfolio management discipline generate strong underlying profitability
— Accelerating top-line growth in target markets
— Excellent investment performance delivering 7 percent total return
— Strong capital base and cash flows support a sustainable and attractive dividend proposal of CHF 17 [$18.40]
*Zurich noted that some prior periods, as indicated, “have been restated. The ending 2012 shareholders’ equity is unaffected by the restatement. Due to the restatement, third quarter 2012 BOP and NIAS were higher by $264 million and $194 million respectively.”

“We delivered a solid performance in 2012, a year characterized by ongoing economic challenges. Our dividend proposal is again very attractive and reflects our confidence in the success of Zurich’s business strategy as well as the Group’s strong cash generation and capital base,” said CEO Martin Senn.

“The integration of our acquired insurance businesses in Latin America and Malaysia is progressing well and contributing meaningfully to growth as evidenced in the strong contribution to profitability from these areas. In addition, during 2012, we expanded our bank distribution agreements through alliances in the Middle East, Italy, Spain and Indonesia.”

“We continue to execute our proven strategy, growing our business in emerging markets while delivering a resilient performance in mature markets. This strong underlying profitability ensures we remain well positioned to continue to deliver for our customers, employees and shareholders in 2013,” he concluded.”

The earnings report also noted that the Group “remains focused on delivering its targets. The underlying loss ratio for General Insurance continued to improve in 2012 and was 61.4 percent at year end. The business segment showed a strong underlying performance, which was adversely impacted by weather-related events, a continued decline in investment income as well as decreases in favorable development on reserves established in the prior years and by the previously announced financial adjustments in Germany.”

Zurich said its global life business “maintained profitability levels while continuing to show growth in gross written premiums, policy fees and insurance deposits. The business segment strategy of diversifying geographically into target markets and diversifying product mix into protection and fee-based offerings is offsetting the volume and margin pressures in Europe.

“Farmers showed an increase in BOP of 5 percent in the management services company, while the second consecutive year of significant weather-related events and the absence of favorable prior year loss development compared with 2011 led to losses from reinsurance operations.”

The section of the report, which detailed Farmers operations in 2012, noted that its “business operating profit decreased by $72 million to $1.4 billion or by 5 percent, primarily due to a net underwriting loss incurred by Farmers Re.”

Farmers Management Services business operating profit, however, “increased by $71 million to $1.4 billion or by 5 percent, primarily driven by the increase in gross earned premiums in the Farmers Exchanges, which are managed but not owned by Farmers Group, Inc., a wholly owned subsidiary of the Group. Farmers Re business operating profit deteriorated by $142 million to a loss of $26 million, mainly reflecting the absence of favorable development of reserves established in prior years, which benefited Farmers Re during 2011.”

Zurich added that its Farmers Management Services management fees and other related revenues” increased by $79 million to $2.8 billion or by 3 percent, which was driven by the 3 percent increase in gross earned premiums in the Farmers Exchanges.

“The 24 percent increase to $4.4 billion in gross written premiums of Farmers Re was mainly a result of changes in the All Lines quota share reinsurance agreement, as well as the 3 percent gross written premiums growth in the Farmers Exchanges. These changes were an increase in the Farmers Re participation in the Farmers Exchanges business to 20 percent effective December 31, 2011 from 12 percent throughout 2011 and a decrease in the All Lines participation to 18.5 percent effective December 31, 2012, subject to regulatory approval.”

The report added that “non-core businesses recorded an increased business operating profit of $128 million resulting from an increased profit from other run-off businesses.

“Total return on Group investments, which includes investment income, net capital gains and losses and impairments as well as changes in net unrealized gains and losses reported in shareholders’ equity, was 7 percent, an increase of 1.7 percentage points compared with 2011. This excellent investment performance was achieved through a disciplined approach to investing relative to liabilities underpinned by prudent risk management.

“The Group preserved an excellent capital position with shareholders’ equity increasing by $3 billion to $34.5 billion.

Source: Zurich Insurance

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