Zurich nine months update – Solid growth in commercial business Donnerstag, 12. November 2020 - 06:45
Zurich nine months update – Solid growth in commercial business
- Property & Casualty (P&C) gross written premiums up 3% on a like-for-like basis1 with strong growth in commercial insurance and further improvement in rates
- Recovery in Life new business sales in the third quarter with APE up 7% on a like-for-like basis1; year-to-date APE sales down 8% on a like-for-like basis1
- Farmers Exchanges2 gross written premiums 3% lower including USD 311 million customer rebates in the first half-year
- Capital position strong with Z-ECM ratio estimated at 110%3 at September 30, 2020; Swiss Solvency Test ratio as per September 30, 2020, at 193%4
- P&C claims related to COVID-19, net of reduced claim frequency, are unchanged at approximately USD 450 million5 as at September 30, 2020
- Priorities remain supporting customers and wellbeing of colleagues amid public health and economic challenges, and executing on customer-focused strategy
"Over the third quarter, the Group continued to successfully manage the unprecedented challenges of COVID-19, a global recession and a record number of hurricanes making landfall in the United States. Our priority remains the support of our customers and the safety and wellbeing of our colleagues as we continue to execute on our customer-focused strategy," said Group Chief Financial Officer George Quinn.
"Growth in our commercial business has remained strong with further improvement in commercial pricing and underlying underwriting performance. Our life business saw a return to growth in the third quarter despite ongoing challenges for face-to-face distribution channels, while Farmers continued to execute on their strategy to improve growth."
"Through the nine months, the Group has continued to demonstrate its resilience and the strength of the balance sheet, with the capital position under the Z-ECM improving over the quarter."
| in USD millions, for the nine months ended September 30, unless otherwise stated | 2020 | 2019 | Change6 in USD | Change1,6 like-for-like |
| P&C gross written premiums (GWP) | 27,258 | 26,442 | 3% | 3% |
| Life annual premium equivalent (APE) | 2,573 | 3,173 | (19%) | (8%) |
| Farmers Exchanges2 GWP | 15,285 | 15,734 | (3%) | (3%) |
| Z-ECM3,7 | 110% | 129% | (19ppt) | n.a. |
Property & Casualty
| Gross written premiums (GWP) | Rate change, in % | |||||
| in USD millions, for the nine months ended September 30, unless otherwise stated | 2020 | 2019 | Change6 in USD | Change1,6 like-for-like | 2020 | Expected trend |
| Property & Casualty | 27,258 | 26,442 | 3% | 3% | 9% | Stable |
| Europe, Middle East and Africa | 12,376 | 11,388 | 9% | 7% | 4% | Stable |
| North America | 12,311 | 11,892 | 4% | 4% | 16% | Stable |
| Asia Pacific | 2,175 | 2,280 | (5%) | (11%) | 4% | Stable |
| Latin America | 1,616 | 2,114 | (24%) | (7%) | 4% | Stable |
Gross written premiums in Property & Casualty (P&C) for the first nine months increased 3% on a like-for-like basis1, adjusting for currency movements, acquisitions and disposals. Growth was driven by Europe, Middle East and Africa (EMEA) and North America. In U.S. dollar terms gross written premiums grew 3% compared with the previous year.
Growth was supported by higher premium rates, which improved further in the third quarter. All regions saw increases in premium rates driven by commercial insurance. Notably, commercial insurance premium rates increased by 18% and 15% respectively in North America and EMEA in the third quarter.
In EMEA, gross written premiums increased 7% on a like-for-like basis1. Growth was driven by commercial insurance, most notably in Germany, Switzerland and the UK. Retail insurance was up modestly year-on-year following improved third-quarter growth. North America grew 4% on a like-for-like basis1 compared with the previous year, with the growth driven mainly by rate increases. In Asia Pacific, gross written premiums decreased 11% on a like-for-like basis1, with growth in Japan offset by a reduction in travel insurance across the region. Gross written premiums declined 7% on a like-for-like basis1 in Latin America, with measures to prevent the spread of COVID-19 and reduced economic activity impacting sales in the mass consumer business.
Property & Casualty claims related to COVID-19, net of reduced claim frequency, remained unchanged at approximately USD 450 million5 as at September 30, 2020.
The third quarter also saw an active Atlantic storm season with hurricanes Hanna, Isaias, Laura and Sally making landfall in the United States. Together with other weather events in both North America and EMEA, losses from natural catastrophes are expected to be around 2 percentage points higher than normal over the second half of the year.
| Annual premium equivalent (APE) | New business value (NBV) | |||||||
| in USD millions, for the nine months ended September 30, unless otherwise stated | 2020 | 2019 | Change6 in USD | Change1,6 like-for-like | 2020 | 2019 | Change6 in USD | Change1,6 like-for-like |
| Life | 2,573 | 3,173 | (19%) | (8%) | 553 | 728 | (24%) | (18%) |
| Europe, Middle East and Africa | 1,582 | 2,032 | (22%) | (14%) | 344 | 439 | (22%) | (21%) |
| North America | 88 | 97 | (9%) | (9%) | 35 | 32 | 12% | 12% |
| Asia Pacific | 156 | 170 | (8%) | (26%) | 71 | 156 | (55%) | (48%) |
| Latin America | 748 | 874 | (14%) | 7% | 104 | 101 | 3% | 29% |
In the first nine months, Life new business annual premium equivalent (APE) sales decreased 8% on a like-for-like basis1, adjusting for currency movements, acquisitions and disposals. The decline in sales in the first nine months was largely driven by a combination of government-imposed restrictions related to the COVID-19 outbreak and expected reductions in several markets from exceptional levels in 2019. On a reported basis APE was 19% lower.
In the discrete third quarter, growth recovered, with APE sales up 7% on a like-for-like basis1 driven mainly by a strong performance in Latin America.
In EMEA APE sales in the first nine months decreased by 14% on a like-for-like basis1 compared with the same period in 2019. The decline was mainly driven by a reduction in corporate pensions business in Switzerland following exceptional sales in the first nine months in 2019, and by lower savings business in Spain and in Italy as a result of the COVID-19 lockdown in the first half of the year.
In Asia Pacific APE sales decreased 26% on a like-for-like basis1, reflecting lower sales volumes in Japan, Malaysia and Indonesia, mainly driven by the outbreak of the COVID-19 virus.
APE sales in Latin America increased 7% on a like-for-like basis1, following a strong third quarter with APE growth of 22%. Higher sales of unit-linked and individual protection business at Zurich Santander were partly offset by lower sales volumes in Chile and corporate protection business across the region.
In North America APE sales were 9% lower than in the prior year due to reduced sales of corporate protection business mainly in the first quarter.
The new business margin remained on an attractive level at 24.9% as reported or 25.6% on a like-for-like basis1. New business value (NBV) decreased 18% on a like-for-like basis2, driven by lower new business volumes, unfavorable economic assumption changes due to the reduction in yields in EMEA and operating assumption changes impacting key countries in Asia Pacific. On a reported basis NBV declined 24%.
| in USD millions, for the nine months ended September 30, unless otherwise stated | 2020 | 2019 | Change6 in USD |
| Farmers Exchanges2 | |||
| Gross written premiums (GWP) | 15,285 | 15,734 | (3%) |
| Gross earned premiums (GEP) | 14,976 | 15,290 | (2%) |
| Surplus ratio7 | 40.5% | 41.5% | (1.0ppts) |
The Farmers Exchanges2, which are owned by their policyholders, reported a reduction in gross written premiums in the first nine months of the year of 3%. This was driven primarily by USD 311 million of COVID-19 related premium refunds and the downward revision of premiums relating to lower volumes of commercial rideshare business due to the COVID-19 outbreak.
The Farmers Exchanges2 continued to make progress with their customer-focused strategy. Key indicators of this strategy remained strong, with the net promoter score, a measure of customer satisfaction, further increasing above prior year levels.
The Farmers Exchanges2 surplus decreased over the first nine months of the year to USD 5.8 billion, with the surplus ratio declining to 40.5%. This reflects the reduction of the all lines quota share reinsurance treaty from 29% to 26% effective December 31, 2019.
| in USD millions, for the nine months ended September 30, unless otherwise stated | 2020 | 2019 | Change6 in USD |
| Farmers | |||
| Farmers Management Services management fees and other related revenues | 2,741 | 2,818 | (3%) |
| - excluding IFRS 15 gross up and other revenues | 2,134 | 2,179 | (2%) |
| Farmers Life annual premium equivalent (APE) | 54 | 61 | (12%) |
| Farmers Life new business value (NBV) | 77 | 69 | 12% |
Farmers Management Services (FMS) management fees and other related revenues decreased 3% from the prior year period. Adjusted for the IFRS 15 gross-up of expenses that are fully offset within the expense line and have no impact on FMS’s business operating profit, management fees and other related revenues decreased by 2%.
Farmers Life new business APE sales decreased 12%, reflecting challenges for face-to-face distribution channels during the COVID-19 outbreak. New business value increased 12%, mainly driven by lower interest rates and positive shifts in the business mix.
Capital position
As of September 30, 2020, the Z-ECM ratio is estimated at 110%3 and remains within the Group’s targeted range. Zurich’s Swiss Solvency Test ratio is estimated at 193%4 as of September 30, 2020.
In order to be more aligned with reporting by the Group’s Swiss and European peers, the Group intends to change the reporting of its capital position to be based solely on the regulatory Swiss Solvency Test from the fourth quarter of 2020.
1 Like-for-like comparisons represent the change in local currencies and are adjusted for the acquisition of Adira Insurance in Indonesia, OnePath Life in Australia, the SME portfolio of CSS Versicherung AG in Switzerland, and the disposal of the retail wealth business in the UK.
2 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.
3 Ratio for September 30, 2020, reflects midpoint estimate with an error margin of +/- 5 pts.
4 Estimated Swiss Solvency Test ratio, after application of standard yield curves as allowed by FINMA. The SST ratio accounts for EUR 750m subordinated debt issued on June 9, 2020, and approved as eligible risk-bearing capital by FINMA on July 22, 2020.
5 As per slide 13 of the Group’s HY-20 Investor & Media presentation, the Group reported USD 447 million of P&C claims related to COVID-19 net of associated frequency benefits.
6 Parentheses around numbers represent an adverse variance.
7 Ratios as of September 30, 2020, and December 31, 2019, respectively.
Further information
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Zurich Insurance Group (Zurich) 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, where it was founded in 1872. The holding company, Zurich Insurance Group Ltd (ZURN), is listed on the SIX Swiss Exchange and has a level I American Depositary Receipt (ZURVY) program, which is traded over-the-counter on OTCQX. Further information about Zurich is available at www.zurich.com.
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 inter-insurance 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 Farmers 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.
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