Zurich Insurance Group Annual Report 2016 Zurich Insurance Group Annual Report 2016 Highlights Zurich Insurance Group is a leading multi-line insurer that serves its customers USD 4.5 bn USD 3.2 bn in global and local markets. With about Business operating profit (BOP) 1 Net income attributable 54,000 employees, it provides a wide to shareholders (NIAS) range of property and casualty, and life insurance products and services in more than 210 countries and territories. Zurich’s customers include individuals, small businesses, and mid-sized and large companies, as well as multinational 11.6% USD 10.4 bn corporations. The Group is headquartered Business operating profit after tax return Cash remittances over 2014 – 2016 period in Zurich, Switzerland. on equity (BOPAT ROE) 2 USD 67.2 bn USD 190 bn Total revenues Total Group investments Z-ECM 122% AA–/stable Zurich Economic Capital Model ratio 3 Standard & Poor’s financial strength estimated as of December 31, 2016 rating of Zurich Insurance Company Ltd as of December 31, 2016 Our cover Formulated by our people, for our customers, our new strategy will guide us in our efforts to provide the best service and products. Our cover shows the individuals who worked with 12 senior Zurich leaders over five months to develop our new strategy. Learn more on page 7. Note on terminology As part of the simplification of our business, we are removing the segment layers of General Insurance and Global Life. The new business structure is focused on geographic regions and consists of Asia Pacific, Europe, Middle East & Africa (EMEA), Latin America and North America. Further, the Group has created a new unit called Commercial Insurance, which combines Corporate and Commercial businesses into a single global business. Starting in 2017, the products and solutions belonging to the former General Insurance will be referred to collectively as Property & Casualty, or P&C; the same applies to Global Life, which will now be Life; Farmers remains the same, but in future will contain the Farmers New World Life business results. 1 Business operating profit indicates the underlying performance of the Group’s business units by eliminating the impact of financial market volatility and other non-operational variables. Total Group business volumes comprises gross written premiums, policy fees, insurance deposits and management fees generated within General Insurance, Global Life and Farmers. 2 Shareholders’ equity used to determine ROE and BOPAT ROE is adjusted for net unrealized gains/(losses) on available-for-sale investments and cash flow hedges. 3 The Zurich Economic Capital Model (Z-ECM) is an internal measure of capital adequacy and reflects midpoint estimates with an error margin of +/–5 ppts. Zurich Insurance Group Group Group Financial Additional 01 Annual Report 2016 overview Governance performance review information information At Zurich, our focus is on long-term, Contents sustainable value. Founded in 1872, Group overview today we are one of the world’s Message from our Chairman 2 Message from our Group CEO 4 leading insurers. With our knowledge Business environment 8 Strategic overview 10 and experience, we help our Business review 2016 12 customers to understand and protect themselves from risk. Our success Governance Message from our Chairman is tied to principles of sound corporate on corporate governance 26 Corporate governance report 28 governance. Our Board and Message from our Remuneration Committee Chairman 74 management focus on delivering high- Remuneration report 76 quality results. Merit-based incentives Group performance review encourage our people to do their Message from our Group Chief Risk Officer 114 best. Through our products, services Risk review 116 and expertise we can benefit society Operating and financial review 148 as a whole. We are mindful of our Financial information responsibilities to all our stakeholders. Consolidated financial statements 166 Now and in the future. Holding company 276 Additional information Shareholder information 294 Glossary 295 Contact information 297 Zurich Insurance Group 02 Annual Report 2016 Message from our Chairman Looking to the future, building on our strengths 2016 was a year of transition. I am confident USD 30.7 bn that our new strategy and structure will Shareholders’ equity allow us to meet the challenges and grasp the opportunities that lie ahead. CHF 17.00 Proposed dividend per share We will work toward becoming“ a more agile and customer-focused organization.” Tom de Swaan Chairman of the Board of Directors Zurich Insurance Group Group Group Financial Additional 03 Annual Report 2016 overview Governance performance review information information For Zurich and externally, 2016 was a year our new strategy and organizational structure Zurich is well positioned to succeed in this of transition and change. Following his already are beginning to take effect. environment. Our new strategy and appointment by the Board, Mario Greco We achieved underlying improvements organization will help us in our aims to deliver began as Group CEO in March 2016. in our General Insurance business, the disciplined, sustainable profit that we His immediate focus was how best to position a continued strong performance of our have already seen the beginnings of in 2016. Zurich for long-term sustainable success. Global Life business, and in Farmers. Going forward, Zurich will retain its identity This culminated in our new strategy as a global insurer. We will continue to presented to investors in November 2016. Focusing on sustainability champion the benefits of free and open The strategy provides Zurich with a clear Through this period of organizational and cross-border trade, which has lifted direction, a focused set of actions and strategic change, Zurich remains focused on millions out of poverty to date. We will a simpler, more efficient way of working. corporate responsibility. By acting responsibly, navigate external challenges and seize the Our aspiration is to serve every customer we can create sustainable value for all opportunities presented by trends such in a way that feels personal, is effective our stakeholders. In 2016, Zurich achieved as digitalization. And we will strive to deliver and is uniquely Zurich. The new strategy its highest score of 85 in the Dow Jones success sustainably as a responsible business. harnesses Zurich’s core strengths. These Sustainability Index review, outperforming include our well-balanced geographical 97 percent of other companies in the With a robust new strategy and structure footprint and portfolio, our solid financial insurance industry group. Our responsible in place, I am confident we will meet base, our trusted brand and our highly investment approach was awarded the the challenges and grasp the opportunities skilled and talented people. Institutional Investor Institute’s Peer-to-Peer that lie ahead. Thank you for your continued support. To be successful, Zurich must ensure its award for ‘Best Environmental, Social and culture and behaviors are consistent Governance Programme.’ Meanwhile, Zurich’s with its strategic aims. We will work toward award-winning flood resilience program becoming a more agile and customer- continued its work within our flood resilience focused organization, with an accountable, alliance in communities in Mexico, Indonesia, collaborative and merit-based culture. Nepal, Peru and Bangladesh. One example of how we are increasing our focus on customers was our decision to Challenges and opportunities merge our Global Corporate and Commercial Tom de Swaan 2016 saw persisting challenges in the external Chairman of the Board of Directors businesses into a single, strong Commercial environment, including the transformative Insurance unit. effects of digitalization. This means insurers Our ability to reduce costs and increase must disrupt or be disrupted. Meeting this efficiency is implicit within achieving the challenge is a considerable task, compounded strategy. We are pleased that expenses by a low-yield environment, which poses fell significantly in 2016, reflecting actions particular problems for the insurance industry. taken during the year. We will continue Meanwhile, a shifting political landscape to focus on achieving net savings over the creates uncertainties for future legislation and years to come in line with our targets. regulation governing globally active insurance Zurich’s encouraging 2016 results show that companies such as Zurich. Our business segments General Insurance Global Life Farmers Property and casualty insurance Protection, savings Management services related to and services, risk insights. and investment solutions. property and casualty insurance. USD 2.4 bn USD 1.3 bn USD 1.5 bn Business operating profit Business operating profit Business operating profit USD 33.1 bn USD 30.3 bn USD 2.9 bn Gross written premiums and policy fees Gross written premiums, policy fees Management fees and other related revenues and insurance deposits Pages 152 to 156 Pages 157 to 160 Pages 161 to 162 Zurich Insurance Group 04 Annual Report 2016 Message from our Group CEO Our strategic aims The economic outlook remains challenging. At our Investor Day on November 17, 2016, Growth is likely to be soft, particularly in the developed markets in which we operate. Zurich announced a new strategy that Interest rates and, consequently, returns positions the company for future success. on investments, are likely to remain low. In this context of uncertainty about the world Building on its