Zurich Insurance Company Group Zurich Insurance Company Group Annual Report 2019
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Annual Report 2019 Zurich Insurance Company Group Zurich Insurance Company Group Annual Report 2019 Contents Risk review 2 Financial review 24 Consolidated financial statements 32 Financial statements – statutory accounts 148 Zurich Insurance Company Group Annual Report 2019 1 About us Zurich Insurance Group is a leading multi-line insurer that serves its customers in global and local markets. With about 55,000 employees, it provides a wide range of property and casualty, and life insurance products and services in more than 215 countries and territories. Zurich’s customers include individuals, small businesses, and mid-sized and large companies, as well as multinational corporations. The Group is headquartered in Zurich, Switzerland. Zurich Insurance Company Group Annual Report 2019 2 Risk review The risk review is an integral part of the consolidated financial statements. Risk and capital are managed at the Zurich Insurance Group, segment, region and business unit level according to our risk and capital management framework. The principles of the Zurich Insurance Group’s enterprise risk management described in the ‘risk and capital management section’ are equally applicable to the Zurich Insurance Company Ltd (ZIC) and its consolidated subsidiaries (collectively the ‘ZIC Group’). The figures presented are prepared on a ZIC Group basis. Contents Risk management 3 Objectives of risk management 3 Risk management framework 3 Risk governance and risk management organization 4 Capital management 5 Objectives of capital management 5 Capital management framework 5 Capital management program 5 Insurance financial strength rating 6 Regulatory capital adequacy 6 Analysis by risk type 7 Insurance risk 7 Market risk, including investment credit risk 14 Other credit risk 19 Operational risk 21 Liquidity risk 22 Strategic risk and risks to the Zurich Insurance Group’s reputation 23 Zurich Insurance Company Group Annual Report 2019 3 Risk review (continued) Risk management Objectives of risk management Taking and managing risk is an integral part of the insurance business. Zurich Insurance Group manages and takes risks in an informed and disciplined manner and within a pre-determined risk appetite and tolerance. The major risk management objectives at Zurich Insurance Group are to: 33Support achievement of the Zurich Insurance Group strategy and protect capital, liquidity, earnings and reputation by monitoring that risks are taken within the Zurich Insurance Group’s risk tolerance 33Enhance value creation by embedding disciplined risk-taking in the company culture and contribute to an optimal risk-return profile where risk reward trade-offs are transparent, understood, and risks are appropriately rewarded 33Efficiently and effectively diversify risk and avoid or mitigate unrewarded risks 33Encourage openness and transparency to enable effective risk management 33Support decision-making processes by providing consistent, reliable and timely risk information 33Protect Zurich Insurance Group’s reputation and brand by promoting a sound culture of risk awareness, and disciplined and informed risk taking Risk management framework The risk management framework is based on a governance process that sets forth clear responsibilities for taking, managing, monitoring and reporting risks. The Zurich Risk Policy is Zurich Insurance Group’s main risk governance document. It sets standards for effective risk management throughout the Zurich Insurance Group. The policy describes the Zurich Insurance Group’s risk management framework, provides a standardized set of risk types, and defines the Zurich Insurance Group’s appetite for risks at Zurich Insurance Group level. Risk-specific policy manuals provide guidelines and procedures to implement the principles in the Zurich Risk Policy. Ongoing assessments verify that requirements are met. Zurich Insurance Group regularly reports on its risk profile at local and Zurich Insurance Group levels. The Zurich Insurance Group has procedures to refer risk topics to senior management and the Board of Directors in a timely way. To foster transparency about risk, the Board receives quarterly risk reports and risk updates. In 2019, reporting was supplemented with in-depth risk insights into topics such as information security management, accumulation risk, long-tail Life risk, credit risk and country risk. Zurich Insurance Group identifies, assesses, manages, monitors and reports risks that have an impact on the achievement of its strategic objectives by applying its proprietary Total Risk Profiling™ (TRP) methodology. The methodology allows Zurich Insurance Group to assess risks in terms of severity and probability and supports the definition andimplementation of mitigating actions. At Zurich Insurance Group level, this is an annual process, followed by regular reviews and updates by management. Zurich Insurance Group’s risk appetite and tolerance reflects Zurich Insurance Group’s willingness and capacity to take risks in pursuit of value, and sets boundaries within which the businesses act. By monitoring that risks are taken within agreed risk appetite levels and tolerance limits, Zurich Insurance Group protects its capital, liquidity, earnings and reputation. Zurich Insurance Group regularly assesses and, as far as possible, quantifies material risks to which it is exposed. Zurich Insurance Group’s goal is to maintain capital consistent with a ‘AA’ financial strength rating for Zurich Insurance Group. Zurich Insurance Group translates that goal into a quantified risk tolerance. The primary metric used to steer business is the Zurich Economic Capital Model (Z-ECM) which provides a key input into Zurich Insurance Group’s planning process as an assessment of Zurich Insurance Group’s risk profile against Zurich Insurance Group’s risk tolerance. The Z-ECM forms the basis for optimizing Zurich Insurance Group’s risk-return profile by providing consistent risk measurement across Zurich Insurance Group. Zurich Insurance Company Group Annual Report 2019 4 Risk review (continued) Risk-based remuneration Based on Zurich Insurance Group’s remuneration rules, the Board of Directors designs and structures remuneration arrangements that support the achievement of strategic and financial objectives and do not encourage inappropriate risk-taking. Group Risk Management’s role in respect to remuneration and its interaction with Board committees is described in the remuneration report. Risk governance and risk management organization Risk management organization The Group Risk Management function is a global function, led by the Zurich Insurance Group CRO. Risk and Investment Committee of the Board Group Chief Executive Officer Executive Group Chief Risk Officer management committees Leads the Group Risk Management function, which develops frameworks and methodologies for identifying, measuring, managing and reporting risks throughout the Group. The Group CRO has direct access to the Board of Directors. Group level Region and business unit level Staff at Group level focus on risk Regional and business heads of risk management frameworks, risk governance, risk reporting, Business unit chief risk officers methodologies and tools, and Each country has a dedicated risk management qualitative and quantitative team located with the local management team assessments. They quantify the Group’s for effective business partnering activities, serving risk and economic capital position and both management and legal entity view. monitor adherence to risk tolerance. They quantitatively assess insurance, market, credit and operational risk and focus on model validation. Risk function The Group has committees covering oversight activities that Reporting about risks encompass major business areas. The committees review certain risk management matters for their respective areas. At the local level, these oversight activities are conducted through risk and control committees. The risk function is independent of the business by being a vertically integrated function where global risk employees report directly into the Zurich Insurance Group CRO, unless otherwise required by local laws or regulations. Risk officers are embedded in the business, positioning them to support and advise, and independently challenge, business decisions from a risk perspective. As business advisers on risk matters, the risk officers, equipped with technical risk skills as well as business skills, help foster a risk-aware culture in the business. Zurich Insurance Company Group Annual Report 2019 5 Risk review (continued) Capital management Objectives of capital management Zurich Insurance Group manages capital to maximize long-term shareholder value while maintaining financial strength within its ‘AA’ target range, and meeting regulatory, solvency and rating agency requirements. As of December 31, 2019, shareholders’ equity of USD 35.0 billion, subordinated debt of USD 6.9 billion and senior financial debt of USD 3.2 billion, excluding net new issued senior debt since the second quarter of 2018, were part of the capital available in the Zurich Insurance Group’s economic framework. Further adjustments usually include items such as intangible assets, deferred tax assets and liabilities, allowing for discounting of liabilities and the value of in-force business, or inclusion of market value margin and expected profit over the next 12 months. For more information, see analysis of Zurich Insurance Group’s Z-ECM available financial resources’ (unaudited). Zurich Insurance Group strives