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Financial Overview Annual Results 2020

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Financial Overview Annual Results 2020 Financial overview Annual results 2020 Zurich Insurance Group Zurich Insurance Group 2 Annual results 2020 Message from our Group Chief Financial Officer Full-year 2020 results demonstrated a strong performance in a challenging environment. We reported business operating profit (BOP) of USD 4.2 billion compared with USD 5.3 billion in 2019. The decline was largely due to the impact of COVID-19 and higher catastrophe losses. Net income attributable to shareholders amounted to USD 3.8 billion and a dividend of CHF 20 has been proposed. Message from our Group Chief Financial Officer Executing on strategic priorities The Group’s diverse global business and strong balance sheet – Strong together with efficiency improvements realized over 2016 – 2019 – positioned the Group well to manage the challenges of the global pandemic, while executing on the Group’s customer-focused strategy. During the year, the group continued to digitalize all aspects of the business, increasing convenience for customers and improving results. efficiency. The group further extended its customer reach through incremental distribution partnerships and took advantage of opportunities to further strengthen Farmers. The Group has made a good start into the new strategic cycle despite the challenges of volatile financial markets and a global pandemic, with all units contributing to underlying improvement in earnings. Together with our customer focused strategy, simplified operating model and strong balance sheet, the Group is positioned for further growth. George Quinn Group Chief Financial Officer 2020 – 2022 financial targets Target: >14.0% BOPAT ROE1 11.0% FY 2020 Target: >USD 11.5bn Cumulative cash remittances USD 3.4bn As of FY 2020 Target: 160% or above Estimated SST ratio2 182% FY 2020 Target: >5% p.a. Earnings per share growth in USD –8% FY 2020 1 Business operating profit after tax return on equity, excluding unrealized gains and losses. 2 Estimated Swiss Solvency Test (SST) ratio as of January 1, 2021, has been calculated based on the Group’s Internal Model, which has been 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. FINMA agreed to the use of standard yield curves for the main currencies to calculate the SST, starting end of Q1 2020. Zurich Insurance Group 3 Annual results 2020 Message from our Group Chief Financial Officer (continued) Progress made across all businesses at Farmers Management Services as a result of the decline in gross written premiums at the Farmers Exchanges. The Group’s Property & Casualty (P&C) saw a 28 percent decline in business operating profit (BOP) due to the impact of COVID-19 and During the year the Group announced the acquisition of the U.S. higher catastrophe losses. Adjusting for these effects, the Property & P&C business of MetLife, which will further strengthen the Casualty business saw further underlying improvement. Farmers Exchanges and further increase the contribution of Farmers Management Services to the Group. Gross written premiums grew 4 percent on a like-for-like basis driven by continued strong price increases in commercial insurance, while Group Functions and Operations showed an improved performance retail business remained broadly stable. Commercial insurance prices with the associated net loss reduced by 1 percent due to lower increased over the year, with all regions showing improvement. interest expenses. The combined ratio of 98.4 percent was 2 percentage points A strong capital position and cash generation higher than in the prior year, driven by COVID-19 claims and higher catastrophes, while the underlying combined ratio improved During the year, management continued to improve the Group’s by 2.6 percentage points. The Group’s reserve strength remained focus and optimize the use of capital. The Group’s balance sheet and stable over the year, with prior-year reserve development of Swiss Solvency Test (SST) ratio remained strong at an estimated 1.6 percentage points. 182 percent 2, which is in-line with the Group’s target of having an SST of 160 percent or above. The Group’s life business BOP declined 4 percent due to falls in financial markets in the first half of the year and higher mortality The Group continued to successfully convert earnings into claims linked to the COVID-19 outbreak. Adjusted for these effects, distributable cashflow with cash remittances back to the Group of BOP increased 7 percent with all regions showing growth. USD 3.4 billion in 2020, equivalent to 90 percent of net income attributable to shareholders. During the year the level of remittances The Group’s life business is well placed to manage the ongoing was driven both by operational earnings and remittances of excess low yield environment due to its focusing early on life protection and capital that had built up over time from previously retained earnings. capital efficient savings products. These products contributed 88 percent of annual premium equivalent (APE) sales during the year. Dividend proposal of CHF 20 Gross written premiums at the Farmers Exchanges decreased In line with the stated dividend policy, the board proposed a dividend 3 percent and were broadly flat before COVID-19-related customer of CHF 20 per share. rebates. Key customer metrics remained strong as a result of the Farmers Exchanges’ customer-focused strategy. Farmers BOP declined 12 percent as a result of higher mortality related to COVID-19 at Farmers Life together with a 6 percent decline George Quinn Group Chief Financial Officer Property Casualty PC) ife Farmers Exchanges2 Combined ratio Business operating profit Combined ratio CR) % in S illions % 96.4 98.4 146 1,423 100.0 100.7% 3.2 8.5% 6.8% 10.5% 32.1% 320% 93.2% 90.2 63.4% 59.5% 2.3% -1.6% 2019 2020 2019 2020 2019 2020 Catastrophes Expense ratio Catastrophes CR excluin catastrophes Accient ear loss ratio excluding catastrophes Prior ear evelopment Like-for-like GWP growth 2020 APE product mix GP %1 % in S illions 20656 20,10 2019 61% Unitlined, protection an orporate ife & ensions 88% Savings Annuit 12 2020 3.8% 2019 2020 1 In local currency and adjusted for closed acquisitions and disposals. 2 For all references to Farmers Exchanges see the disclaimer and cautionary statement. Zurich Insurance Group 4 Annual results 2020 Financial overview Financial overview Contents Financial highlights 5 Operating update 6 Property & Casualty (P&C) 6 Life 8 Farmers 10 Group Functions and Operations 11 Non-Core Businesses 11 Financial update 12 Balance sheet review 12 Treasury and capital management 12 Significant transactions in 2020 13 Being a responsible taxpayer 13 Message from our Group Chief Investment Officer 14 The information contained within the financial review is unaudited and is based on the consolidated results of the Group for the years ended December 31, 2020 and 2019. All amounts are shown in U.S. dollars and rounded to the nearest million unless otherwise stated, with the consequence that the rounded amounts may not always add up to the rounded total. All ratios and variances are calculated using the underlying amounts rather than the rounded amounts. This document should be read in conjunction with the annual results 2020 of the Group and in particular with its consolidated financial statements and embedded value report for the year ended December 31, 2020. In addition to the figures stated in accordance with International Financial Reporting Standards (IFRS), the Group uses business operating profit (BOP), new business metrics and other performance indicators to enhance the understanding of its results. Details of these additional measures are set out in the separately published glossary. These should be viewed as complementary to, and not as substitutes for, the IFRS figures. For a reconciliation of BOP to net income attributable to shareholders (NIAS), see note 27 (table 27.4) of the audited consolidated financial statements for the years ended December 31, 2020. Certain comparatives have been revised as a result of reclassifications and other adjustments. For details refer to note 1 of the audited consolidated financial statements. Zurich Insurance Group 5 Annual results 2020 Financial overview (continued) Financial highlights in USD millions, for the years ended December 31 2020 2019 Change 1 Business operating profit 4,241 5,302 (20%) Net income attributable to shareholders 3,834 4,147 (8%) P&C business operating profit 2,080 2,878 (28%) P&C gross written premiums and policy fees 35,518 34,184 4% P&C combined ratio 98.4% 96.4% (2.0 pts) Life business operating profit 1,423 1,486 (4%) Life gross written premiums, policy fees and insurance deposit 27,616 33,479 (18%) Life new business annual premium equivalent (APE) 2 3,625 4,331 (16%) Life new business margin, after tax (as % of APE) 2 25.1% 25.8% (0.8 pts) Life new business value, after tax 2 788 976 (19%) Farmers business operating profit 1,501 1,707 (12%) Farmers Management Services management fees and other related revenues 3,703 3,780 (2%) Farmers Management Services managed gross earned premium margin 6.8% 7.0% (0.2 pts) Farmers Life new business annual premium equivalent (APE) 2 75 82 (9%) Average Group investments 3 204,639 190,237 8% Net investment result on Group investments 3 6,950 7,391 (6%) Net investment return on Group investments 3, 4 3.4% 3.9% (0.5 pts) Total return on Group investments 3, 4 6.4% 8.2% (1.9 pts) Shareholders’ equity 38,278 35,004 9% Swiss Solvency Test ratio 5 182% 222% (40.0 pts) Return on common shareholders’ equity (ROE) 6 13.0% 14.4% (1.3 pts) Business operating profit (after tax) return on common shareholders’ equity (BOPAT ROE) 6 11.0% 14.2% (3.3 pts) 1 Parentheses around numbers represent an adverse variance.
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