Zurich Reports 93% Rise in 1st Half Net to $1.448 Billion; Losses from Charley Estimated at $150 Million

August 19, 2004

The Zurich Financial Services Group reported that its net income for the first half of 2004 nearly doubled to $1.448 billion, compared to $752 million in the same period of 2003. The 93 percent increase would produce an annualized return on equity of 16.8 percent.

Other earnings highlights reported by the company included the following:
— Business operating profit (BOP) of $1.948 Billion, up 47 percent from 2003; annualized BOP ROE after tax of 15.1 percent.
— Gross written premiums in General Insurance of $20.557 billion, up 6 percent from 2003.
— Combined ratio improved by 2.1 percentage points from 98.8 percent to 96.7 percent.
— Gross written premiums and policy fees in Life Insurance decreased by 10 percent to $5.676 billion in line with measures to reduce the Group’s exposure to underperforming businesses, while new business profit margin improved by 1.5 percentage points to 9.7 percent.
— Net income at Farmers Management Services of $344 million, up 10 percent from 2003; BOP of $539 million, up 5 percent.

“Zurich’s strong performance was supported by a significant improvement in the General Insurance underwriting result,” said the announcement. “The Group’s high-quality portfolio benefited from low claim frequencies, absence of large catastrophes, and the strong rate increases achieved in prior years. The Life Insurance segment showed further progress on its path to recovery as a result of focusing on more profitable businesses, expense reductions, and the better alignment of products and services with current investment yields. The Group net investment result rose by 20 percent to $3.859 billion.”

CEO James J. Schiro commented: “Zurich’s recovery continues. Success is coming from the sharp focus on core businesses, financial discipline and sound underwriting. While the Group exceeded its targeted return on equity, it also further strengthened its balance sheet. Zurich is positioned to leverage its global capacity in order to continue to benefit from attractive markets.

“The markets we are operating in continue to be fragile. We knew that the benign environment we have seen in the last 18 months, which was characterized by the absence of large catastrophes and low claim frequencies, would not continue forever. Now hurricane Charley has reminded us of this point rather painfully. We reckon with losses of about USD 150 million net of reinsurance.”

Schiro concluded his comments with a reminder that “The constant monitoring of external developments ensures that we can continue to take actions to further strengthen our balance sheet when necessary. Our commitment to operational and financial discipline is unwavering. We are not prepared to chase prices down below a technically sound level. On the contrary, we will consistently aim for underwriting profitability over growth.”

Further details in the report cited a “more than threefold increase in the net underwriting result” in general insurance from $158 million to $487 million and the improvement in net income to $981 million, an increase of 25 percent. The segment’s business operating profit rose by 37 percent to $1.302 billion.

“Gross written premiums and policy fees grew to $20.6 billion, an increase of 6 percent (1 percent in local currency), the bulletin continued. “Growth was driven by a mixture of rate and volume increases as well as favorable exchange rate movements. Excluding divestments and foreign exchange impacts, premium growth was approximately 2 percent, while net earned premiums, benefiting from the strong rate increases in prior years, rose by 12 percent (6 percent in local currency) to $14.6 billion.

“Disciplined underwriting and the geographically well-balanced portfolio contributed to the sizeable 2.1 percentage point improvement in the combined ratio from 98.8 percent to 96.7 percent. Net reserves for losses and loss adjustment expenses increased 4.1 percent to $38.5 billion, with prior year reserve strengthening amounting to $656 million. As a result of the Group’s focus on operational efficiency the expense ratio remained constant at 24.6 percent.”

Zurich added that the Farmers Management Services business, which it manages, but does not own, showed significant improvement, as a “result of higher premiums at the Farmers P&C Group Companies. In the first six months, the surplus of the Farmers P&C Group Companies grew by $231 million to $3.9 billion.”

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