Zurich reports robust operating performance for the first six months of 2010

Zurich, August 5, 2010 – Zurich Financial Services Group (Zurich) today reported a robust operating performance from its core businesses for the six months ended June 30, 2010, with continued strong growth at Global Life and Farmers supporting the Group’s profitability. In General Insurance, the solid performance was impacted by a high occurrence of catastrophe- and weather-driven events during the first half of the year. Zurich’s total financial results take into account the impact of the previously reported charge from increased banking loan loss provisions of USD 330 million, before tax. The Group’s capital and solvency positions remain very strong, underpinning a well-diversified portfolio of businesses and its continued focus on sustained profitability, operating efficiency and effective risk management.

Half-year performance highlights ¹ include:

• Business operating profit (BOP) of USD 2.3 billion, a decrease of 10%. Annualized BOP ROE ² after tax of 12.4%
• Net income ³ of USD 1.6 billion, a decrease of 16%. Annualized return on equity (ROE) of 11.5%
• Total Group business volumes, comprising gross written premiums, policy fees, insurance deposits and management fees, of USD 34.9 billion, an increase of 3% or 1% on a local currency basis
• Total return on Group investments, measured as percentage of average invested assets, of non-annualized 3.6%, up 200 basis points
• Shareholders’ equity of USD 28.5 billion, a 3% decrease over year end after deduction of the USD 2.2 billion dividend. Solvency I ratio up 37 percentage points over year end to 232%

Commenting on the performance within the Group’s three core business segments, Zurich’s Chief Executive Officer Martin Senn said: “We continued to achieve significant top- and bottom-line growth at Global Life, which underscores the successful execution of our strategy and our increasing focus on the growing protection needs of customers.”

“At Farmers, our efforts on cost discipline continued to generate strong operating margins, while 21st Century, which was acquired last year, strongly contributed to fee income.”

“Our General Insurance business delivered a solid operating performance in a challenging economic and market environment. The business maintained its focus on protecting profit margins and absorbed the significant impact from an unusually large number of weather- and catastrophe-driven events.”

Dieter Wemmer, Chief Financial Officer, added: “Our strong equity position is underscored by a further increase in our book value per share to almost CHF 208, even after accounting for the gross dividend of CHF 16 and foreign exchange movements, which reduced the book value per share by CHF 8.”

“The reduction in net income year-on-year also reflects the restatement that we had previously announced in connection with the implementation of a dynamic hedge in the first quarter on a closed U.S. life portfolio. Without the restatement, we would have shown an increase against the USD 1.3 billion of net income as published last year.”

Segment performance

General Insurance:

Business operating profit decreased to USD 1.4 billion, mainly as a result of higher weather-related losses globally, the earthquake in Chile during the first quarter, and reduced investment income. Rate increases and targeted underwriting actions implemented over the past quarters compensated for the lower investment income contributing to improvements in the underlying loss ratio. However, the higher occurrence of severe weather- and catastrophe-driven events compared with prior year combined with lower volumes particularly impacting the expense ratio resulted in a deterioration of the combined ratio. The lower volumes were driven by both a continued decline in insured customer exposure, the competitive market environment and the Group’s continued disciplined approach to underwriting.

Global Life:

New business value ⁴ , after tax, reached USD 392 million, up 17% in local currency. The strong increase in new business value was driven by higher domestic sales in Ireland as well as increased cross-border sales from Ireland, higher corporate pension sales volumes in the UK and Latin America, and margin improvements in Germany. These improvements were partially offset by higher interest rates reducing the margin on protection products in the U.S. Overall, the new business margin, after tax, amounted to 22.8%, an increase of 1.8 percentage points compared with the same period in the prior year. New business volumes (in terms of annual premium equivalent or APE) increased by 8% in local currency, reflecting growth in the Private Banking Client Solutions, Corporate Life & Pension and IFA/Broker businesses. Net policyholder flows increased by USD 1.3 billion mostly due to higher sales volumes of single premium products as well as focused efforts on in-force management. Business operating profit increased by 12% to USD 720 million driven by enhanced expense and investment margins as global financial markets recovered, while the Group’s continued focus on protection business also led to an improved risk margin.

Farmers:

Farmers Management Services (FMS) grew its management fees and other related revenues by 12% to USD 1.4 billion driven by a 10% earned premium increase at the Farmers Exchanges (Exchanges). The Exchanges are managed but not owned by a wholly-owned subsidiary of Zurich. Growth at the Exchanges was driven by the contribution from 21st Century, whose integration into Farmers is progressing ahead of schedule. In conjunction with continued cost discipline, the gross management result of FMS improved by 12% resulting in an 8% higher business operating profit of USD 694 million and a gross earned premium margin of 7.4%. Gross written premiums at Farmers Re decreased compared with the prior year period due to changes in the participation level of the quota share reinsurance treaty, which as of June 30, 2010 stands at 25% or where it was prior to the acquisition of 21st Century. Farmers Re’s business operating profit rose to USD 151 million contributing to an increased business operating profit for the overall Farmers segment of USD 845 million.

Other Operating Businesses: The Other Operating Businesses segment, predominantly consisting of the Group’s Headquarter and its Holding & Finance activities, reported an increase in the business operating loss to USD 361 million mainly as one-off gains in the same period of the prior year from buy-backs of subordinated debt were not repeated.

Non-Core Businesses: The Non-Core Businesses segment, including the Group’s run-off insurance businesses and banking activities, reported an increase of USD 8 million in the business operating loss to USD 295 million. The loss in the first six months of the year arose from the increase in banking provisions on loans for commercial property development in the UK and Ireland. The loss in the same period of the prior year arose from reserve increases driven by volatile markets, which have been mitigated in the current year through the dynamic hedge strategy implemented in the first three months of 2010.

Group investments:

Total return on Group investments, including investment income, realized gains and losses, impairments as well as changes in unrealized gains and losses reported in shareholders’ equity, were a strong 3.6% (not annualized). The net investment result for Group investments, which includes investment income, realized gains and losses and impairments, contributed USD 4.0 billion to the Group’s result for the first six months of 2010, a return of 2.1% on invested assets (not annualized). Net capital gains on investments and impairments amounted to USD 418 million, comprising USD 1.2 billion of net realized gains and positive asset revaluations. These were partly offset by impairments of USD 763 million, which includes a banking provision of USD 330 million booked in the second quarter for commercial property development loans in the UK and Ireland. Net unrealized gains reported in shareholders’ equity for the six months improved by USD 2.8 billion as interest rates fell. This result reflects the continued success of the Group’s disciplined investment approach to managing assets relative to liabilities on a risk-adjusted basis.

Note to editors:

There will be an analyst and media presentation today at 9:30 a.m. CEDT at Zurich’s headquarters, Mythenquai 2, Zurich. Analysts and reporters who cannot participate in person may dial in by telephone. Please note that during the Q&A session no questions will be taken from reporters dialing in.

Dial-in numbers:

• Europe +41 (0)91 610 56 00
• UK +44 (0)207 107 06 11
• USA +1 (1) 866 291 41 66

The presentation to analysts and investors will be video webcast on our Web site www.zurich.com live, followed by a webcast replay available after 2:00 p.m. CEDT.

Supplemental financial information, including information on the business divisions and the discrete second quarter is available on our Web site www.zurich.com. Please click on the “ Half year results reporting 2010 – Media view“ link on the bottom right corner of our homepage.

Multimedia material is available on www.zurich.com/multimedia. Furthermore, from about 2:30 p.m. CEDT high resolution pictures of the conference will be available on this portal. In case you have any questions, please e-mail: journalisthelp@thenewsmarket.com.