Zurich, September 6, 2001 - Zurich Financial Services Group's income was in line with expectations for the first half of 2001. Normalized net income was USD 922 million versus USD 1.1 billion for the comparable 2000 period. The IAS net income, which was adversely affected by a significant decline in realized capital gains, was USD 861 million compared with USD 1.3 billion in the 2000 period. IAS fully diluted earnings per share were CHF 17.50 versus CHF 24.91 in the first half of 2000.
Rolf Hüppi, Chairman and CEO of Zurich Financial Services, says: "As we indicated earlier this year, we anticipated an adverse operating environment characterized by depressed equity markets, declining interest rates, a continued strong US dollar and weaker economies. We achieved an annualized normalized return on equity of 9%; while this is acceptable under current operating conditions, it is not a level that meets our expectations for the longer-term. Trading conditions to date would indicate that our previous normalized net income guidance range of USD 1.8 billion to 2.0 billion for 2001 remains within reach."
Progress in strategic restructuring: Reinsurance IPO planned
The previously announced program to re-deploy capital from units that are lower growth, non-strategic or require investments that are difficult to justify into businesses or markets with strong, profitable growth prospects, is progressing well.
"Today we announce our intention to divest our third-party reinsurance business through an IPO, and we expect to announce shortly the specific actions we will take with respect to our asset management business," says Hüppi.
The IPO of Zurich Re will allow Zurich to retain capital and receive cash from the proceeds. The IPO is expected to take place in the fourth quarter of 2001 with Zurich selling at least 70% of the new entity, which will be branded Converium. It is planned to list Converium in Switzerland. In addition, Zurich Re has made a confidential filing with the US Securities and Exchange Commission with respect to a potential NYSE listing.
Performance by business segment
Total gross premium volume, including life insurance deposits and the premiums written by the Farmers P&C Group, grew by 13% in local currencies to USD 27.7 billion. Assets under management declined by 5% to USD 416 billion with third-party funds decreasing by 7% to USD 241 billion. Shareholders' equity at 30 June 2001 was USD 19.3 billion. Book value per share was CHF 389.
Non-Life Insurance
Taking advantage of improved market conditions to increase rates, expand margins and enhance market share, non-life gross written premiums and policy fees increased by a very strong 21% in local currencies in the first half to USD 11.3 billion. Growth in local currencies was particularly strong with an increase of 40% in the United States commercial business and 29% in the United Kingdom. Underwriting performance advanced further with an improvement in the combined ratio of 3.8 percentage points to 104.1%; efficiency gains lowered the expense ratio by 2.8 points to 25.7%, while reserve ratios remained stable. These significant operating improvements however, were offset by lower net realized gains and the fact that Group charges are allocated to the non-life insurance segment. As a result, non-life IAS net income was USD 159 million; normalized non-life net income was USD 181 million.
Life Insurance
The Group experienced good growth in the life business with gross written premiums, policy fees and deposits increasing by 11% in local currencies to USD 8.9 billion. Gross new business premiums grew by 8% in local currencies on an annual premium equivalent basis, while new business margins, given Zurich's business mix, were at the satisfactory level of 6.5%. A larger proportion of the overall income is now contributed by the life business in line with our focus to grow the life segment. IAS reported net income increased by 7% to USD 396 million, while normalized net income advanced 11% to USD 410 million.
Farmers Management Services
Despite the weak personal lines market conditions in the United States, the gross premiums written by the Farmers P&C Group grew by 8% to USD 6.3 billion and management fees advanced 7%. Reported IAS net income, however, declined by 5%; this reflects a reduction in investment income resulting from the USD 1.1 billion special Farmers dividend last year to partially fund share unification. Eliminating the effect of this payment, Farmers normalized net income would have advanced by 6%.
Asset Management
As previously indicated, Zurich is exploring strategic alternatives for the asset management business. The results of this segment were adversely affected by weak equity markets, restructuring expense, asset write-downs and the costs related to new business initiatives. As a result, the segment reported a loss of USD 14 million with a decline of fees in local currencies of 6%. Absent the non-recurring factors, the net income would have been USD 69 million.
Reinsurance
Reinsurance achieved a normalized income of USD 98 million. This result reflects favorable results in alternative risk financing and lower income in the traditional reinsurance business.
In conclusion, Hüppi said: "We are moving forward aggressively with our strategy to focus on areas in which we can excel and grow profitably. The fundamentals of our business are improving, and we are well positioned for the future."
Note to the editor:
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The half year 2001 results are non-audited figures.
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The Zurich Financial Services Group introduced the concept of earnings based on normalized capital gains ("normalized net income") with the announcement of 1999 results to increase the transparency of the underlying business performance by replacing the actual volatile realized capital gains with long term normalized gains. Normalized gains are calculated by applying a rate of 7.5% of the Group's equity portfolio and 0.5% of the bond portfolio. Normalized net income is additional, non-audited information. The published IAS accounts continue to be based on actual realized capital gains.
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The press conference will take place at 09:30 a.m. in Zurich at the Zurich Development Center, Keltenstrasse 48.
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The presentation for investors and analysts will be webcast on our homepage www.zurich.com live at 1:30 p.m. followed by a webcast playback.
