Zurich, March 9, 1999 - Zurich Financial Services expects to report 1998 net earnings growth before merger, restructuring, and other related charges well in excess of its minimum long term growth target of 15%. All four core businesses, non-life insurance, life insurance, reinsurance and asset management, have contributed to this increase despite difficult insurance market pricing conditions and volatile financial markets.
The implementation of the merger plan between Zurich Insurance and B.A.T Industries’ financial services business is progressing very well in terms of increased efficiencies and developing incremental revenues. Following the closing of the merger in September, 1998, and in conjunction with the preparation of the first set of consolidated financial statements of the new Group, Zurich Financial Services has conducted a detailed review of all restructuring opportunities. As a result, the previously announced pretax restructuring charge to be taken in the 1998 results will be increased from USD 1.4 billion to USD 2.4 billion. The change reflects USD 200 million of further restructuring charges and writedowns which now total USD 800 million, and an increase of USD 800 million in the strengthening of non-life technical reserves to USD 1.6 billion. The additional USD 200 million charge includes the costs of closing further operations, terminating contracts, unwinding joint-ventures, and the writing off of associated goodwill. As a result of the progress to date and additional initiatives, the annual cost savings to be realized from the merger are now expected to increase from USD 400 million, as previously announced, to at least USD 500 million by 2001.
The reserve increase results from a post closing review of all non-life insurance liabilities in consideration of the most recent claims experience and expected future development. This addition primarily reflects US and UK asbestos and pollution hazards exposures which are very long tail in nature with durations exceeding 20 years and, hence, difficult to predict accurately. Under previously applied accounting conventions, a portion of these reserves was discounted. However, under the new Group’s IAS (International Accounting Standards) accounting principles, all non-life reserves will be carried on an undiscounted basis unless the prospective claims payment obligations and payment terms are contractually fixed. The additional reserve of USD 800 million represents approximately 2% of the Group’s consolidated non-life reserves for losses and loss adjustment expenses.
Rolf Hüppi, Chairman and Chief Executive Officer of the Zurich Financial Services Group, commented on the merger progress: "The initial strategic logic for the merger has been reconfirmed. We continue to aggressively exploit the opportunities offered by this merger and I am pleased to announce that, based on our favorable experience to date, the annual cost savings we expect to achieve are now clearly higher".
Zurich Financial Services will announce final audited 1998 results on April 30, 1999. Media Conferences will take place the same day in Zurich and London.
