Letter to Shareholders
Results for the six months ended June 30, 2023
Dear Shareholder,
Zurich Insurance Group (Zurich) delivered strong results in the first six months of the year, matching operating profit at the record high reported in the first half 2022,1 achieving the highest ever business operating profit after tax return on equity, and laying robust foundations for the 2023-2025 financial cycle.
Zurich has made a strong start to the new financial cycle. Group business operating profit of USD 3.7 billion in the first six months of 2023 was at the same high level as in the prior year, with 3 percent growth when measured in local currencies.
Net income after tax attributable to shareholders (NIAS) increased 6 percent to USD 2.5 billion, mainly due to a more favorable net impact from capital gains and losses. NIAS also included USD 0.1 billion of costs incurred related to the repurposing of some of Zurich’s own use real estate portfolio. Earnings per share grew 8 percent in U.S. dollars.2 We’ve achieved a business operating profit after tax return on equity3 of 22.9 percent, our highest ever, and among the highest in the industry, while minimizing volatility, maintaining a strong balance sheet and taking advantage of the growth opportunities available to us.
Strong top-line growth has become a more significant driver. The Life business delivered a strong performance during the first half of the year, with growth in both BOP and new business premiums. In Property & Casualty (P&C), the Group achieved price increases of about 6 percent in the first half of the year, supported by a commercial insurance rate change of 7 percent and a recovery in retail. Farmers Exchanges4 and Farmers Management Services are expected to benefit from similar trends, with rate increases also driving growth.
Highlights
Property & Casualty
P&C business operating profit (BOP) of USD 2,247 million was 6 percent lower than in the previous year. Adjusting for currency movements and the non-recurrence of a one-off gain in the prior year, BOP rose 3 percent, supported by higher investment income.
In P&C Commercial Insurance, rates increased 7 percent in the first six months of the year, with increases in North America at 9 percent, driven by further acceleration in the property portfolio. P&C retail improved its profitability in the first half compared with the second half of 2022, thanks to pricing actions taken last year as well as additional premium rate increases. The Group anticipates these effects to continue through the second half of 2023 and beyond.
Gross written premiums grew 10 percent on a like-for-like5 basis, adjusting for currency movements, with growth in both retail and commercial insurance across all regions. In U.S. dollars, the Group’s gross written premiums rose 8 percent.
The combined ratio increased 1.3 percentage points year-over-year to 92.9 percent as we continue to maintain a cautious approach to reserving to minimize volatility.
Life
Life BOP rose 11 percent to USD 939 million, despite U.S. dollar appreciation against other major currencies. On a like-for-like5 basis, Life BOP improved by 18 percent.
The improvement was driven by profitable growth in Latin America, favorable experience in North America, as well as increased BOP in Europe, Middle East & Africa (EMEA) due to higher amortization of contractual service margin6 (CSM), strong fee result, and the non-recurrence of transition adjustments seen in 2022. This more than compensated for a reduction in Asia Pacific’s BOP, which was affected by an unfavorable year-on-year fluctuation in claims experience.
Life new business premiums increased 13 percent in U.S. dollar terms, and 17 percent on a like-for-like5 basis. Growth was mainly driven by retail savings sales in Spain, protection sales in Japan, which rebounded from a low level in the prior year, and higher sales in Brazil through the Group’s joint venture with Banco Santander.
Farmers
Farmers BOP rose 1 percent compared with the prior year. An increase in fee income at Farmers Management Services (FMS) of 2 percent, driven by an increase in gross earned premiums at the Farmers Exchanges,4 was offset by an underwriting loss in Farmers Re and transaction costs in Farmers Life.
The Farmers Exchanges,4 which are owned by their policyholders, reported gross written premium growth of 1 percent in the first half of the year. The reduction in the commercial rideshare business volumes in the first quarter dampened the benefit of increased rates following a continued focus on improving the underwriting performance. On an underlying basis, excluding the commercial ride share business, gross written premiums increased by 5 percent. Gross earned premiums increased by 4 percent over the same period. Excluding catastrophe losses, the Farmers Exchanges’4 combined ratio improved by 1.1 percentage points to 94.1 percent.
Farmers Life new business premiums decreased by 7 percent compared with the prior year. This was mainly driven by the adverse impact of higher discount rates, which were only partially offset by higher sales volumes of the universal life product. New business CSM increased by 5 percent to USD 55 million, benefiting from strong sales as well as modeling changes.
Capital position
As of June 30, 2023, Zurich’s Swiss Solvency Test (SST) ratio was estimated at 263 percent7 and remains well in excess of the Group’s target for an SST ratio of 160 percent or above. This compares with 267 percent as of January 1, 2023. The reduction was driven by a modest negative impact from model and assumption updates.
Share buyback completed
On June 8, 2023, Zurich announced it had completed its public share buyback program of up to CHF 1.8 billion. Through the program launched on November 21, 2022, Zurich repurchased 4,104,413 of its shares for a total purchase value of CHF 1.8 billion at an average purchase price of CHF 438.55 per share. These shares are being cancelled by using the capital band introduced at the Annual General Meeting in April 2023.
We have high expectations for the Group’s performance, and we set targets accordingly. More importantly, we deliver. Our 2023-2025 targets are our most ambitious yet, but our agility, flexibility and focus on delivering results make us confident that we can achieve them.
We are very grateful to you for your continued engagement and support.
Yours sincerely,
Michel M. Liès
Chairman of the Board of Directors
Mario Greco
Group Chief Executive Officer
1 The Group adopted new International Financial Reporting Standards, IFRS 17, as of January 2023. The comparative figures have been restated for IFRS 17. The restatement does not apply to Farmers Exchanges’ figures. Further information about IFRS 17 at Zurich can be found here.
2 Diluted earnings per share in USD.
3 Business operating profit (after tax) return on common shareholders’ equity, adjusted for net unrealized gains/losses (BOPAT ROE).
4 Zurich Insurance Group has no ownership interest in the Farmers Exchanges. Farmers Group, Inc., a wholly owned subsidiary of the Group, provides certain non-claims services and ancillary services to the Farmers Exchanges as its attorney-in-fact and receives fees for its services.
5 Like-for-like comparisons represent the change in local currencies and after adjusting for acquisitions and disposals.
6 Contractual Service Margin (CSM) is a separate component of the insurance liability representing unearned profits from in-force Life contracts (excluding short-term and investment contracts), before the effect of non-controlling interests and taxes.
7 Estimated Swiss Solvency Test (SST) ratio as of June 30, 2023, calculated based on the Group’s internal model approved by the Swiss Financial Market Supervisory Authority FINMA. The SST ratio as of January 1 has to be filed with FINMA by end of April each year and is subject to review by FINMA.
Financial calendar
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09November
Results
Update for the nine months ended September 30, 2023
-
16 November
Investor day
Investor Update 2023
-
22February
Results
Annual Results 2023
-
10April
Annual General Meeting
Annual General Meeting 2024
Disclaimer and cautionary statement
Certain statements in this document are forward-looking statements, including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives of Zurich Insurance Group Ltd or the Zurich Insurance Group (the Group). Forward-looking statements include statements regarding the Group’s targeted profit, return on equity targets, expenses, pricing conditions, dividend policy and underwriting and claims results, as well as statements regarding the Group’s understanding of general economic, financial and insurance market conditions and expected developments. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results and plans and objectives of Zurich Insurance Group Ltd or the Group to differ materially from those expressed or implied in the forward-looking statements (or from past results). Factors such as (i) general economic conditions and competitive factors, particularly in key markets; (ii) the risk of a global economic downturn, in the financial services industries in particular; (iii) performance of financial markets; (iv) levels of interest rates and currency exchange rates; (v) frequency, severity and development of insured claims events; (vi) mortality and morbidity experience; (vii) policy renewal and lapse rates; (viii) increased litigation activity and regulatory actions; and (ix) changes in laws and regulations and in the policies of regulators may have a direct bearing on the results of operations of Zurich Insurance Group Ltd and its Group and on whether the targets will be achieved. Specifically in relation with the COVID-19 related statements, such statements were made on the basis of circumstances prevailing at a certain time and on the basis of specific terms and conditions (in particular applicable exclusions) of insurance policies as written and interpreted by the Group and may be subject to regulatory, legislative, governmental and litigation-related developments affecting the extent of potential losses covered by a member of the Group or potentially exposing the Group to additional losses if terms or conditions are retroactively amended by way of legislative or regulatory action. Zurich Insurance Group Ltd undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise.
All references to ‘Farmers Exchanges’ mean Farmers Insurance Exchange, Fire Insurance Exchange, Truck Insurance Exchange and their subsidiaries and affiliates. The three Exchanges are California domiciled interinsurance exchanges owned by their policyholders with governance oversight by their Boards of Governors. Farmers Group, Inc. and its subsidiaries are appointed as the attorneys-in-fact for the three Exchanges and in that capacity provide certain non-claims services and ancillary services to the Farmers Exchanges. Neither Farmers Group, Inc., nor its parent companies, Zurich Insurance Company Ltd and Zurich Insurance Group Ltd, have any ownership interest in the Farmers Exchanges. Financial information about the Farmers Exchanges is proprietary to the Farmers Exchanges, but is provided to support an understanding of the performance of Farmers Group, Inc. and Farmers Reinsurance Company.
It should be noted that past performance is not a guide to future performance. Please also note that interim results are not necessarily indicative of full year results.
Persons requiring advice should consult an independent adviser.
This communication does not constitute an offer or an invitation for the sale or purchase of securities in any jurisdiction.
THIS COMMUNICATION DOES NOT CONTAIN AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES; SECURITIES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION OR EXEMPTION FROM REGISTRATION, AND ANY PUBLIC OFFERING OF SECURITIES TO BE MADE IN THE UNITED STATES WILL BE MADE BY MEANS OF A PROSPECTUS THAT MAY BE OBTAINED FROM THE ISSUER AND THAT WILL CONTAIN DETAILED INFORMATION ABOUT THE COMPANY AND MANAGEMENT, AS WELL AS FINANCIAL STATEMENTS.