Zurich, March 22, 2001. - As announced in the earnings guidance of February 8, results in 2000 were disappointing for Zurich Financial Services Group (Zurich). Unanticipated reserve strengthening in the last quarter had a significant impact on earnings. Also, following general developments in financial markets, realized capital gains declined during the reported period after two very strong years. Consequently, IAS net income was at USD 2.328 billion or a reduction of 28.7% compared with 1999. This level of income represents a 11% return of equity. Normalized net income was at USD 2.096 billion, 5.5% lower than in 1999.
IAS earnings per share decreased by 20% to CHF 46, while normalized earnings per share on a fully diluted basis were CHF 41.50, an increase of 6%. Both CHF earnings figures reflect the impact of the relative strength of the US Dollar.
Reflecting the USD 1.7 billion special dividend and share buyback associated with our successful share unification in October 2000, shareholders equity declined by 5% to USD 20.7 billion.
Rolf Hüppi, Chairman and CEO of Zurich Financial Services, says: "These results did not meet our expectations and 2001 will be another challenging year. However, our return on equity remains favorable and the Group's performance reflects the ongoing transformation process and its associated costs. Management is determined to improve the performance of the Group and we continue to expect that Zurich can achieve its long term earnings growth target of 10%-15%."
Developments and results by businesses
The total premium volume, including life insurance deposits and the premiums written by Farmers Insurance Exchanges, increased by 4% to USD 50 billion. In local currencies the growth was 7%. Growth in non-life written premiums was 16%. Life insurance premiums and deposits increased by 4% in local currencies. Total assets under management declined slightly to USD 440 billion with third party assets falling 1.7% to USD 259 billion. However, net funds inflow more than doubled to USD 7 billion.
Results in Life businesses continued to strengthen with new business margins improving to 5.2% and producing an embedded value profit of USD 1.223 billion. The embedded value return on life insurance was 10.5%. The life normalized net income grew 14.5% to USD 1.004 billion.
In Non-life the Group's improved underwriting performance was reflected in a combined ratio decrease of 0.6 percentage points to 105.5%. However, non-life income was adversely affected by higher non-technical expenses, foreign exchange developments, costs associated with e-enabling the Group's businesses, and charges relating to share unification. Together with a decline in realized capital gains, these factors reduced net income by 67% to USD 460 million. Normalized net income declined by 66% to USD 283 million.
Farmers' growth accelerated in the second half of 2000. The full year premium growth in the Farmers Exchanges was 6.2% to USD 11.8 billion. Fee income rose by 6.6% to USD 1.6 billion. Normalized income adjusted for prior year's accounting changes increased by 6% to USD 543 million.
Fees in the Asset Management businesses increased by 7% to USD 1.7 billion. However, mainly due to costs relating to start-ups and marketing expenditures, the reported operating margin deteriorated by 3.5% to 15.7%. IAS income before intangible amortization (including goodwill) grew by 4% to USD 264 million.
Despite the reserve strengthening of USD 300 million, businesses in the Reinsurance segment produced good results. Gross written premiums increased by 8% to USD 4.9 billion and normalized net income improved to USD 201 million. Centre and Zurich Capital Markets both contributed to this performance.
Outlook
For Zurich Financial Services, 2000 and 2001 reflect a period of transition post share unification. Despite continuing strong top line growth, management expects 2001 normalized earnings to be in the range of USD 1.8 billion to USD 2 billion.
These earnings expectations take into account:
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The continuing strength of the US Dollar
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Impact of a weaker US economy on financially market sensitive businesses
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Cost of remedial actions and ongoing transformation, including technology investments
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The fact that reported earnings lag the benefits of top line growth
Management continues to expect the Group to achieve 10%-15% long term, annual growth in normalized earnings.
Remedial actions launched
Continuing with the transformation process that began in November 2000, Zurich will focus on offering solutions in non-life insurance, life insurance and investment products and services.
Following a strategic review, Zurich Financial Services has decided to exit the assumed reinsurance business of Zurich Re. The current intention is to accomplish this via a spin-off. Zurich Re, to be renamed, would then become a fully independent, separately listed reinsurer, operating on a global scale. Such a transaction would recognize the interests of Zurich's shareholders, employees and customers.
Zurich is planning to dispose of other non-strategic and/or underperforming businesses representing a market value of up to USD 4 billion.
Zurich has embarked on a program to significantly cut costs across the Group. This includes a reorganization of Group Head Office which will bring annualized savings of USD 140 million by the end of the current year and USD 200 million by year-end 2002. Implementing global procurement is expected to reduce costs by USD 100 million within three years.
In addition, financial management will be improved. The centralized placement of reinsurance will reduce costs by USD 100 million annually. Planned debt reduction of up to USD 2 billion will contribute to reduced interest expenses.
New Board Member
The Board of Directors of Zurich Financial Services proposes the election of Armin Meyer, Chairman and CEO of Ciba Specialty Chemicals, to the Board of Directors. Philippe Pidoux will stand for re-election. Having reached the age limit Henry C.M. Bodmer and Clayton Yeutter are not standing for re-election.
Dividends
The Board of Directors of Zurich Financial Services recommends to the Annual General Meeting a dividend payment of CHF 17.15 per share for the financial year 2000. Dividends are payable on May 23, 2001.
Strategic partnerships
Today Zurich has announced a new strategic partnership between Farmers Group and Ulico Insurance of the US. Ulico offers insurance through local and national union leadership to labour organizations with over 16 million union members throughout the US. This follows the recent announcement of similar strategic alliances with the Bank of Scotland and the Bank of America. These three alliances together are intended to give the Group access to 43 million potential new customers and enable it to offer additional products to its existing customers.
Notes to the editors:
Key figures in appendix
