Zurich, September 6, 2000 - Zurich Financial Services Group’s sustainable net income, calculated with capital gains on a long term, normalized basis (’normalized net income’), advanced by 21% over the same period last year from USD 915 million to USD 1.1 billion. This increase was driven primarily by improved performance in life insurance, reinsurance and asset management. Less buoyant capital markets in the context of an investment philosophy of managing for total long term returns however, led to lower realized capital gains and reduced reported net income by 24% to USD 1.3 billion.
On a normalized basis, attributable earnings per share grew in the first half year 2000 by 36% for Zurich Allied and by 25% for Allied Zurich; reported earnings per share were CHF 24.41 for Zurich Allied, a decline of 15%, and 22.0 pence for Allied Zurich, a decrease of 22%.
’We indicated, when presenting our full year 1999 results, that our investment strategy aims to maximise long term total investment return’, said Rolf Hüppi, Chairman and CEO. ’So in times of strong markets, we take advantage of them to create value for our shareholders. As equity markets were less buoyant in the first half of this year, we reduced the amount of our realized gains. However, we are pleased with the progress of our Group during the first six months. The underlying earnings improved in virtually all our businesses. I am greatly encouraged by the advances made and look forward to a successful full year.’
Gross premiums written, including life insurance deposits and the premiums written in the Farmers Exchanges, increased by 2% to USD 25.4 billion in the first half of 2000. In local currencies the Group’s premium growth was 6%.
Both total and third party assets under management increased by 4% compared to June 30, 1999, to USD 435 billion and USD 260 billion respectively. At constant exchange rates, assets under management have increased marginally since year end 1999.
Significant progress has also been made in realizing efficiencies from the September, 1998 merger. Of the USD 500 million in expected annual cost savings, USD 358 million have been accomplished to date; the full amount of projected savings should be achieved by the end of 2001. In addition to these cost benefits, the exchange of products and expertise across the enlarged Group is providing many new opportunities.
Performance by business segment
Non-life business
In the non-life business, gross written premiums, excluding the Farmers Exchanges, grew by 6% to USD 9.7 billion, and by 12% in local currency terms. Underwriting results improved with a reduction in the combined ratio by 2.2 percentage points to 108%; this was due primarily to a strong decline in the expense ratio of 4.2 percentage points to 28.6%. The exceptionally high realized capital gains in 1999 were not repeated in the first half of this year. Consequently, this led to a reported operating income of USD 710 million. On a normalized basis, and eliminating the effects of changes in currency rates and other special items, underlying non-life earnings advanced year over year. Operating conditions continue to improve in U.S. commercial lines and the UK with marked premium rate increases. Net underwriting reserves remain very strong; the ratio of non-life and reinsurance reserves to net earned premium remained steady at 228% from year end 1999.
The U.S. recorded very strong growth in gross written non-life premiums of 21% and an improvement in the combined ratio by 5.1 percentage points to 106.7%. In the UK premiums in GBP, in accordance with plan, were flat. The combined ratio improved by 3.8 percentage points to 109.2% as the reunderwriting of the portfolio of policies and expense reductions continue to yield improved profitability. Swiss premiums were also flat in CHF with the combined ratio improving from 111.9% to 107.0%. Results outside the U.S. and Europe improved with better performance from Canada and Australia.
Life business
Life gross written premiums, policy fees, and deposits increased 3% in local currency terms to USD 8.4 billion in the first half of 2000. Total life new business premiums and deposits grew by 14% in local currencies. Normalized net income increased by 15% to USD 382 million, but reported earnings decreased by 19% due to the decline in realized capital gains and an unfavorable comparison with accounting changes for employee benefits (’IAS 19’) made in 1999. As a result of improved operating conditions in Switzerland, U.S. and Continental Europe, life new business margins increased significantly.
Reinsurance
Both reported operating income and net income more than doubled in reinsurance to USD 161 million and USD 137 million, respectively. This was mainly the result of an internal reallocation of capital from the non-life to the reinsurance business segment. The underlying performance of the structured solutions businesses however, also recorded further progress.
Farmers Management Services
Farmers revenues in the first half of 2000 were up 4% to USD 772 million while gross written premiums of the Farmers Exchanges grew by 3%; this reflects the continued soft market pricing conditions in U.S. non-life personal lines. Although operating margins and net income remained stable on a comparable basis, reported net income declined 11% when compared with 1999 earnings which were increased by the introduction of IAS 19. Farmers continues to successfully pursue initiatives to expand its business in terms of geography and products while improving the efficiency of its distribution network through technology.
Asset Management
Operating earnings from asset management grew by 52% to USD 184 million on a fee income increase of 12% to USD 852 million with margins expanding from 17.5% to 23.6%. Strong results were recorded in the U.S., Switzerland and the UK as Zurich’s distribution of asset management products accelerates.
Unification of the Group Holding Structure
Significant progress has been made in achieving the previously announced, and shareholder approved, share unification. Almost all of the regulatory approvals have been obtained. Barring any unforeseen developments, a final closing will occur in October. On closing Zurich Financial Services will have a primary listing in Switzerland and a secondary listing in the UK.
Many UK institutions who are FTSE index-sensitive and have internal limits to their holdings of non-UK shares, are required to reduce their ownership in Allied Zurich in anticipation of unification. The Group is advised that the majority of this expected selling activity has now occurred.
To date, the Group has used neither the USD 1 billion authorization to buyback Allied Zurich shares, nor the CHF 1 billion Zurich Allied facility. The current intention is to launch a USD 650 million tender offer for Allied Zurich shares, the details of which will be announced within the next ten days. The tender will be available to all Allied Zurich shareholders and open for 20 business days. It is anticipated that the closing of the tender will be followed shortly thereafter by completion of the unification. The remainder of the buyback authorizations may be used for open market purchases before and after unification.
Appendix: key figures
