Letter to Shareholders
Annual results 2022
Michel M. Liès
Chairman of the Board of Directors
Mario Greco
Group Chief Executive Officer
Dear Shareholder,
In 2022, we achieved the highest business operating profit since 2007. We have exceeded all our financial targets1 for a second three-year period. Based on our excellent balance sheet and strong operating results, we are pleased to propose a dividend per share of CHF 24, a 9 percent increase on the prior year.
Zurich Insurance Group (Zurich) reported very strong profits for the full year 2022, with the highest business operating profit since 2007. The year 2022 ended the second three-year financial cycle of our strategy to transform Zurich into a simpler, more innovative and customer-centric organization. We exceeded our financial targets1 for the second consecutive three-year period. These were tough years with unexpected challenges, during which we had to stay very agile and focused on our goals. We continued to execute our strategy with strong discipline and successfully drove our results to deliver the targets. We are very grateful to our colleagues, customers and partners for this remarkable achievement, and we thank you and all our shareholders for their continued trust.
2022 highlights and proposed dividend
The Property & Casualty (P&C) business reported an excellent combined ratio and more importantly showed double digit top-line growth. Higher risk-adjusted prices in commercial insurance and continued measured progress toward our growth ambitions took P&C gross written premiums to a record level.
The Life business achieved the highest profits ever, with a very light capital consumption. Our balance sheet remains excellent, especially as we progress with the sale of Life back books in Europe. This, together with our strong operating results, has allowed us to propose a 9 percent increase in the dividend per share to CHF 24.
The Group’s Swiss Solvency Test (SST)2 ratio was estimated at 265 percent, well in excess of the Group’s target for an SST ratio of 160 percent or above. The increase of 54 percentage points was primarily driven by favorable market movements. Compared with the end of the first nine months of 2022, the ratio increased by 13 percentage points, with the sale of a life and pension back book in Italy to GamaLife adding 9 percentage points. The Group solvency has benefited from the strong rise in interest rates across all currencies. Strong capital generation had further positive impact on the ratio.
Throughout 2022, the Group continued to advance its customer-focused strategy, increasing the use of data insights to improve their experience. This is reflected in higher customer satisfaction and loyalty across the retail business, with the retention rate up 2 percentage points to 82 percent and 5.7 million net new customers added3 over the last three years. This supported strong top-line growth, with retail and small and medium-sized enterprise (SME) gross written premiums up 13 percent on a like-for-like4 basis in 2022.
In the commercial business, demand from customers for dedicated services around current and emerging risks, including climate change, has helped make recently created Zurich Resilience Solutions one of the Group’s fastest growing businesses. Technology is playing a critical role in Zurich’s ambition to be a provider of choice. In 2022, Zurich created a global digital platform that enables faster integration and more efficient collaboration with commercial customers and partners.
Highlights
Business operating profit (2021: USD 5.7 bn)
Net income attributable to shareholders (2021: USD 5.2 bn)
Swiss Solvency Test ratio1 (January 1, 2022: 212%)
Business operating profit (after tax) return on common shareholders’ equity (2021: 14.0%)
Proposed dividend per share (2021: CHF 22)
Net new retail customers2(2020-2022: 5.7 m)
1 Estimated Swiss Solvency Test (SST) ratio, calculated based on the Group’s internal model 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.
2 Based on 19 retail markets.
Group business results
Full-year 2022 business operating profit (BOP) was USD 6.5 billion, an increase of 12 percent compared with USD 5.7 billion in 2021, with improvement across almost all operating segments. This led to a business operating profit after tax return on equity (BOPAT ROE) of 15.7 percent, the highest since 2009, and well above the 2020-2022 target of greater than 14 percent. Net income after tax attributable to shareholders was USD 4.6 billion, a decrease of 12 percent compared with the prior-year period. This was mainly driven by a lower level of capital gains, net losses on divestment of businesses and hyperinflation charges related to the Latin American business, which more than offset the higher level of BOP. This led to earnings per share (EPS) of USD 30.8 on a fully diluted basis. Adjusted for the one-off impact of the USD 260 million loss on disposals incurred in the second half of 2022, mainly driven by the sale of the Italian legacy life back book, EPS was USD 32.2, corresponding to a 5.1 percent compound annual growth rate compared with the year 2019. Cash remittances of USD 12.4 billion in the 2020-2022 period on a cumulative basis were well above the target of above USD 11.5 billion.
Property & Casualty
Property & Casualty (P&C) BOP of USD 3.6 billion was 14 percent higher than in the previous year. The result benefited from a record level of premiums and a strong combined ratio of 94.3 percent, in line with the previous-year period. Lower catastrophe and weather-related claims were partially offset by the inflationary environment experienced within the retail and SME business in the second half of 2022, in particular within the motor business, while commercial insurance continued to benefit from a higher earned rate and margin expansion. Excluding crop insurance, the combined ratio improved 0.5 percentage points year-over-year, driven by a 3.0 percentage points improvement in the commercial insurance combined ratio compared with the prior period.
Gross written premiums grew 14 percent on a like-for-like4 basis, adjusting for currency movements, with growth in both retail and commercial insurance across all regions. The Group achieved price increases of about 6 percent in the year, supported by a commercial insurance rate change of 8 percent.
Life
Our Life business showed a strong operating performance, with BOP at a historic high, while continuing to reduce the capital intensity of the business. Full-year BOP of USD 2.0 billion was up 8 percent compared with the prior-year period, despite unfavorable currency movements due to U.S. dollar appreciation against other major currencies. On a like-for-like4 basis, Life BOP rose by 23 percent, with stronger operating performance, lower COVID-19 claims, and favorable effects from management actions more than offsetting the adverse effects of financial markets. COVID-19 claims fell to USD 57 million from USD 195 million in the previous year.
Life new business annual premium equivalent (APE) sales increased 1 percent on a like-for-like4 basis. Growth was driven by higher sales in capital-efficient savings and protection products, which accounted for 95 percent of APE.
Farmers
Farmers BOP increased by 18 percent to USD 1.9 billion over the prior year on top-line growth at Farmers Exchanges5 and improved mortality experience related to COVID-19 at Farmers Life. Gross written premiums of the Farmers Exchanges5 increased by 9 percent in the year, benefiting from the inclusion of the MetLife business as well as rate-driven growth in the Business Insurance, Farmers Specialty and Farmers Home businesses.
The Farmers Exchanges5 combined ratio increased 0.9 percentage points to 105.2 percent, mainly driven by an increase in the non-catastrophe loss ratio due to higher severity. This was partially offset by a reduction in catastrophe losses and a lower expense ratio compared with the prior year. The surplus ratio declined due to the higher Farmers Exchanges5 premium base on which it is calculated, as well as a decline in the ending surplus caused by market-driven movements in unrealized capital losses and a net underwriting loss. These were partially offset by higher net investment income and realized capital gains.
Farmers Management Services BOP increased 13 percent, with growth in management fees and other related revenues up 5 percent, largely driven by growth in the fee base following the MetLife integration. Farmers Re posted a modest gain, driven by higher investment income and an improved combined ratio compared with the prior year. Effective December 31, 2022, Farmers Re increased its participation in the Farmers Exchanges5 all lines quota share treaty from 1.75 percent to 8.50 percent.
Responsible and impactful
Zurich made further progress in 2022 toward its ambition to be one of the most responsible and impactful businesses in the world, and was awarded the highest-possible environmental, social and governance (ESG) rating from MSCI and from CDP.6 A key part of our goal is to support a sustainable transition to net-zero emissions by addressing every lever available: reducing emissions in the Group’s own operations, and working together with customers and companies that Zurich invests in.
Zurich is taking bold action to cut its own emissions. By the end of 2022, the Group had, among other measures, met its target of switching fully to renewable power worldwide and was on track to reduce air travel emissions by 70 percent compared with pre-pandemic levels.7 The progress allowed Zurich to bring forward our target to achieve net-zero in our operations by 20 years to 2030.
Zurich continued to expand its customer offering of solutions designed to generate positive environmental or social impacts or contribute to mitigating climate risk. During the year, revenues from these sustainable activities nearly doubled to USD 566 million.
In its investment portfolio, Zurich reduced the emissions (CO2e) intensity of corporate investments by 12 percent in 2022 versus the 2019 baseline, following progress by investee companies on their path toward net-zero emissions. The Group’s target is a 25 percent reduction by 2025.
Beyond the climate crisis, another priority is to help our employees to be equipped for the future. Our focus on reskilling and upskilling our workforce resulted in an increase in the proportion of internal hires by 3 percentage points to 71 percent in 2022. Diversity efforts are paying off, with more women serving in senior roles. The female representation in senior management8 increased by 2 percentage points to 29 percent.
Supporting communities
Throughout the year, Zurich and the Z Zurich Foundation9 have provided humanitarian aid to the victims of the war in Ukraine, raising CHF 2 million in the first months of the war. In June 2022, Zurich delivered more than 200 tons of food aid to Kharkiv. Zurich exited the Russian market in July 2022 when it sold its business in the country to 11 members of the unit’s team.
New senior appointment
In October 2022, Zurich announced that Raul Vargas would succeed Jeff Dailey as Chief Executive Officer of Farmers Group, Inc. and as a member of the Zurich Insurance Group Executive Committee. Mr. Vargas, who most recently served as President of Distribution, Life and Financial Services for Farmers Group, Inc., has more than two decades of international leadership experience across Latin America and Europe, including eight years as CEO of Zurich Santander Insurance America. Mr. Dailey will continue as Chairman of Farmers Group, Inc.
Share buyback program
In November 2022, Zurich Insurance Group Ltd started a public share buyback program of up to CHF 1.8 billion of Zurich’s registered shares for capital reduction purposes. The program aims to offset the expected earnings dilution of the agreed sale of a legacy life back book in Germany and is expected to be completed by December 29, 2023, at the latest. Based on the closing price of Zurich shares on the SIX Swiss Exchange on November 16, 2022, CHF 1.8 billion corresponds to approximately 4.15 million shares and 2.76 percent of Zurich’s registered share capital, respectively. As of December 31, 2022, 829,830 Zurich shares, having a repurchase value of CHF 373 million, had been purchased.
Outlook
Zurich is committed to the delivery of its targets for the 2023-2025 cycle. Having presented our new financial targets and raising our ambitions for 2023-2025, we will accelerate the execution of our customer-centered strategy by further extending the application of data analytics throughout the Group and by accelerating digital innovation. The combination of continued margin improvement in our commercial business, improving trends in retail and our ability to grow across all our businesses supports the Group's higher financial ambition for the 2023-2025 cycle.
For 2023 specifically, Zurich expects P&C commercial insurance margins to expand while rates continue to moderate throughout the year. Retail and SME P&C is expected to start to see improving results as the impact of price increases takes effect and claims inflation moderates. Zurich will continue to find opportunities to profitably grow capital-light Life operations, although weaker macro-economic conditions and financial market volatility may constrain new business production in the short term. Farmers Exchanges5 gross written premiums are expected to grow in the low single digits as the Exchanges focus on improving underwriting performance.
We look forward to updating you on our progress on achieving the goals of our strategy. Detailed comparative information for 2022 based on IFRS 17 will be provided along with the first-quarter 2023 update on May 17.
We are very grateful to you for your continued engagement and support.
Yours sincerely,
Michel M. Liès
Chairman of the Board of Directors
Mario Greco
Group Chief Executive Officer
1 Earnings per share adjusted for the impact of second half-year 2022 loss on disposals of USD 260 million, mainly related to the sale of the legacy life back book in Italy. 2 Estimated Swiss Solvency Test (SST) ratio, calculated based on the Group’s internal model 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. 3 Based on 19 retail markets. 4 Like-for-like comparisons represent the change in local currencies and are adjusted for closed acquisitions and disposals. 5 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. 6 CDP runs a global environmental disclosure system used to measure a company’s disclosure and environmental performance. 7 2022 data results will be published upon completion of a reasonable assurance audit, anticipated in Q2 2023. 8 Includes career level D (senior executives and senior experts) and career level E (most senior roles such as country CEOs and other senior business leaders). 9 The Z Zurich Foundation is a Swiss-based charitable foundation established by members of the Group. It is the main vehicle by which Zurich delivers on its global community investment strategy.
Financial calendar
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10 March
Results
Annual Report 2022
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06April
Annual General Meeting
Annual General Meeting 2023
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17May
Results
Update for the three months ended March 31, 2023
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 interinsurance 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 three 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.
It should be noted that past performance is not a guide to future performance. Please also note that interim results are not necessarily indicative of full year results.
Persons requiring advice should consult an independent adviser.
This communication does not constitute an offer or an invitation for the sale or purchase of securities in any jurisdiction.
THIS COMMUNICATION DOES NOT CONTAIN AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES; SECURITIES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION OR EXEMPTION FROM REGISTRATION, AND ANY PUBLIC OFFERING OF SECURITIES TO BE MADE IN THE UNITED STATES WILL BE MADE BY MEANS OF A PROSPECTUS THAT MAY BE OBTAINED FROM THE ISSUER AND THAT WILL CONTAIN DETAILED INFORMATION ABOUT THE COMPANY AND MANAGEMENT, AS WELL AS FINANCIAL STATEMENTS.