Zurich Financial Services reports net income of USD 702 million in the first quarter 2004

Zurich, May 19, 2004 - Zurich Financial Services Group (Zurich) reported net income of USD 702 million and an annualized return on equity (ROE) of 16.2% in the first quarter 2004. Business operating profit, the measure to assess the underlying performance of the Group's core insurance businesses, rose by 21% to USD 942 million. This corresponds to an annualized business operating return on equity after tax of 14.8%. All core businesses contributed to the improved bottom line. The results reflect the disciplined implementation of the Group's customer-focused strategy, measures to further strengthen the performance in Life Insurance, and support from firm prices in key markets. Premium growth in General Insurance contributed to positive operating cash flow of USD 1.5 billion.

James J. Schiro, Chief Executive Officer of Zurich Financial Services, said: "The results reflect our continuing ability to manage our businesses to profitability. We remain committed to disciplined underwriting in line with sound pricing and a tight grip on cost and expenses as we focus on creating shareholder value through superior products and services that help our customers manage risk effectively."

Performance highlights

Comparisons refer to the first quarter 2003 unless stated otherwise. Quarterly results are not indicative of the full year performance.

General Insurance earned net income of USD 458 million, an increase of 42% on 2003. Gross written premiums rose to USD 11.1 billion, an increase of 14% (6% in local currencies). The net underwriting result more than doubled to USD 222 million as earned premiums, benefiting from rate increases in previous periods, rose faster than losses and loss adjustment expenses. Correspondingly, the combined ratio improved by 1.2 percentage points to 96.9%. Based on developments in the year so far, pricing is expected to continue to be adequate throughout 2004.

Life Insurance recorded a swing from net loss of USD 23 million to net income of USD 223 million. Gross written premiums and policy fees were USD 3.1 billion, a decrease of 14% (23% in local currencies), while Life Insurance deposits rose by 16% (2% in local currencies) to USD 2.3 billion. The premium reduction is attributable to the divestment of underperforming businesses and the redesign of the group pension business model in Switzerland. Adjusted for these changes and for currency movements, Life Insurance premiums and policy fees remained nearly flat. The segment's performance benefited from changes in the business mix implemented last year in line with product re-pricing, lower bonuses and guarantees, expense savings, and increased shareholder participation across Continental Europe. Zurich's distribution partnerships also contributed to the stronger result, and the performance benefited further from an improvement in gains on investments of USD 224 million net after adjusting for gains attributable to reserves for future benefits for policyholders. The new business margin rose from 6.3% to 9.8%.

Farmers Management Services earned net income of USD 177 million, while business operating profit rose to USD 276 million. These improvements were the result of higher premiums at the Farmers P&C Group Companies, which Zurich manages, but does not own. In the first quarter, the surplus of the Farmers P&C Group Companies grew by USD 143 million to USD 3.8 billion.

Shareholders' equity rose from USD 18.8 billion at the end of 2003 to USD 20.1 billion as a result of strong net income and an increase in net unrealized gains on investments of USD 625 million. Shareholders' equity for 2003 was restated by USD 600 million to reflect the Group's current estimate of the impact of a new accounting standard.

Investment net income decreased marginally to USD 1.7 billion, mainly due to the divestment of certain Life operations in the second half of 2003. Benefiting from favorable market conditions in the equity and bond markets, the quarterly return on Group investments rose to 1.9% compared with 0.2% in 2003. The Group increased the proportion of debt securities in the USD 175.1 billion investment portfolio to 66.2%, while reducing the proportion of common stock for which Zurich bears investment risk to 5.4% from 6.4% at December 31, 2003. Since the end of March 2004, bond yields have risen considerably, particularly in the US. While this development will contribute to higher investment income as cash flow generated in insurance operations can be invested at higher yields, it is likely to reduce unrealized gains on Group investments from the level reported at the end of the quarter.

Financial Highlights

The following table presents the summarized consolidated results of the Group for the three months ended March 31, 2004 and 2003 and the financial positions as of March 31, 2004 and December 31, 2003. The 2003 amounts have been restated following the adoption of new accounting standards in 2003 and 2004. Certain prior year balances have been reclassified to conform to the 2004 presentation.

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