Letter to Shareholders
Annual results 2023
Dear Shareholder,
Zurich Insurance Group (Zurich) delivered strong results in 2023, achieving a record business operating profit , and its highest ever return on equity (BOPAT ROE).1 Based on our record results and our excellent balance sheet, we are proposing an increase in our dividend, supplemented by a share buyback of up to CHF 1.1 billion.
In the first year of Zurich’s 2023-2025 financial cycle, Zurich posted its highest ever business operating profit (BOP) of USD 7.4 billion, an increase of 21 percent2 in U.S. dollar terms, strongly supported by an excellent performance of the Commercial Insurance business, a record performance in our Life business, and growth at Farmers. Zurich also achieved its highest ever after tax return on equity (BOPAT ROE)1 of 23.1 percent. Net income after tax attributable to shareholders (NIAS) increased 10 percent to USD 4.4 billion.
Dividend, share buyback
This result puts Zurich in an excellent position for further growth and allows the Group to return more than USD 5 billion to you, our shareholders.
Generating industry-leading shareholder returns is one of Zurich’s key ambitions, which is evidenced by its attractive dividend policy. Since 2016, Zurich has generated a shareholder return of 16 percent per annum. This compares favorably with the 9 percent annual shareholder return delivered by leading peers during the same period.3 In light of these record results and strong capital position, Zurich proposes an 8 percent dividend increase to CHF 26, a 19 percent increase in U.S. dollars.4 Zurich plans to supplement the ordinary dividend with a share buyback of up to CHF 1.1 billion.
Highlights
Earnings per share (EPS) rose 12 percent in U.S. dollars, and 20 percent on an adjusted basis.6 Zurich now expects compound annual growth in 2023-2025 EPS to exceed 10 percent. This compares with the target of 8 percent, which was established at the 2022 Investor Day.
Zurich’s capital position is very strong, with the Swiss Solvency Test (SST) ratio5 estimated at 233 percent as of January 1, 2024, and it remains well in excess of the Group’s target for an SST ratio of 160 percent or above. This compares with 267 percent as of January 1, 2023, with the reduction reflecting the accrual of the proposed 2023 dividend and an additional share buyback of up to CHF 1.1 billion, as well as the redemption of EUR 500 million of subordinated debt and the acquisition of three brokerage entities and the flood program servicing arm from Farmers Exchanges.7
Business highlights
This strong set of results was driven by all of Zurich’s businesses. Zurich’s Commercial Insurance business has made great strides in improving its profitability, by focusing on underwriting discipline, ensuring a balanced portfolio, and simplifying customer and broker interactions through enhanced connectivity and data analytics capabilities. Zurich’s Retail business continues to improve as the 2023 accident year combined ratio, excluding catastrophes, improved. In Retail, Zurich’s customer retention rate has remained stable over the past years, with customer loyalty improving despite rate increases. Zurich has also improved its brand consideration ranking in eight markets since 2019.
Zurich’s diligent management of its exposure to extreme weather events has helped to reduce earnings volatility and make the quality of its financial performance more predictable and solid. The actions are paying off, with natural catastrophe losses within the guided range for the full-year 2023, despite severe flooding and hailstorms in Europe during the third quarter.
Property & Casualty
P&C business operating profit (BOP) of USD 3,893 million rose 7 percent in U.S. dollars compared with the prior year period. This was mainly driven by the increase in insurance revenue and an improvement in the investment result. The combined ratio remained stable year-over-year at 94.5 percent. Commercial P&C maintained strong returns while Retail saw an improvement compared with the prior year period.
Gross written premiums grew 7 percent, with growth in both Retail and Commercial insurance across all regions. The Group achieved price increases of about 6 percent, supported by a Commercial Insurance rate change of 7 percent, and an acceleration of rate increases in the Retail business.
Life
The Life business delivered a very strong performance in the year, with an all-time high BOP of USD 2,060 million, 39 percent higher than in the prior year in U.S. dollar terms, with top-line growth across all parts of the business. The excellent results reflect the ongoing successful execution of the Group’s Life strategy that focuses on protection and capital light savings business. Top-line growth was strong in all parts of the business, contributing to profit growth. Long-term insurance saw an increase in new business premiums, which will drive profits over time, and short-term insurance continued to grow strongly while maintaining stable underwriting margins. Fee business saw a strong improvement compared with the prior year, which was affected by adverse market performance.
The year-on-year increase reflects solid underlying performance of the business, favorable experience, as well as the non-repeat of approximately USD 350 million of adverse impacts from transition-related adjustments and other one-offs which occurred in 2022. Underlying performance benefited from a higher contractual service margin (CSM), strong growth in the short-term protection business and improved fee result.
New business premiums increased 24 percent in U.S. dollar terms. Key drivers of growth included large sales volumes of a retail savings product in Spain, written by the Group’s joint venture with Banco Sabadell primarily in the first quarter, protection sales in Asia Pacific and unit-linked sales in Latin America.
Farmers
Farmers achieved strong growth, reflecting the successful management actions in 2023. Farmers BOP rose 10 percent to USD 2,296 million. Farmers Management Services BOP grew 10 percent compared with the prior year period due to the increase in gross earned premiums (GEP) at the Farmers Exchanges7 and higher managed GEP margin.
Farmers Exchanges,7 which are owned by their policyholders, achieved 5 percent growth in gross written premiums on an underlying basis, excluding the commercial rideshare business (3 percent on a reported basis). Rate actions have contributed to growth in most books of business. The combined ratio for the fourth quarter was better than expected, falling to 89.8 percent. Excluding catastrophe losses, the Farmers Exchanges7 combined ratio improved 5.4 percentage points to 91.9 percent. The Farmers Exchanges7 surplus ratio decreased to 33.5 percent, mainly as a consequence of the underwriting loss in the period following historic high catastrophe losses, partially compensated by the favorable impact of the sale of three brokerages and the flood business. Farmers Re benefited from the improved underwriting at the Farmers Exchanges,7 contributing USD 117 million to the Group BOP.
The Farmers Life BOP was 25 percent lower than the prior year, driven by a lower insurance service result as Farmers Life entered into a reinsurance transaction with Resolution Life for its individual life in-force book, which was completed on August 1, 2023.
Enhancing customer experience
Over the last three years, Zurich has invested USD 1.8 billion in technology, mostly focused on digitalizing the business, improving efficiency and customer experience. For instance, 89 percent of Zurich’s retail quotes are now digitalized. Zurich is also leveraging artificial intelligence (AI) in more than 160 use cases providing advanced data insights to help underwriters, risk engineers and claims adjusters take better informed decisions. Zurich strengthened its workforce with digital capabilities through an extensive upskilling program and the recruitment of over 1,000 digital technology specialists with critical skills, in areas like data analytics, AI, cyber security and cloud computing.
Senior appointments
The Board of Directors will propose the election of John Rafter to the Board at Zurich’s Annual General Meeting on April 10, 2024. His nomination follows a distinguished career as an investment banker at Goldman Sachs. From 1997 until 2020, he served as managing director within the investment banking division, becoming a partner in 2000. He then served as a senior adviser from 2020 to 2023. He brings strategic, capital markets and financial expertise with an in-depth knowledge of the global insurance industry.
In December 2023, we announced that Claudia Cordioli will join Zurich on March 1, 2024, as Group Chief Financial Officer. Ms. Cordioli comes from Swiss Re, where she has held several senior roles over the past 20 years, most recently as Group Finance Director overseeing core finance functions.
In November 2023, Zurich named Cara Morton as Head of Zurich Global Ventures, effective February 1, 2024. She also became a member of the Group Executive Committee. She joined Zurich’s travel services business Cover-More in 2018, and became CEO of Cover-More in 2020.
Outlook
We delivered record returns in 2023, well ahead of all targets for 2023-2025, with particularly strong growth in P&C and Life and highly effective management actions at the Farmers Exchanges.7 We expect this positive momentum to continue and to achieve EPS growth above 10 percent over the cycle.
Our investor and media presentation provides more detailed guidance for the 2024 earnings outlook. It includes mid-single digit growth in insurance revenue for P&C, and the Life BOP expected to be at least in line with the record high level of 2023.
We are very grateful to our colleagues, customers and partners for their contribution to this success. We thank you and all our shareholders for their continued trust.
Yours sincerely,
Michel M. Liès
Chairman of the Board of Directors
Mario Greco
Group Chief Executive Officer
1 Shareholders’ equity used to determine ROE and BOPAT ROE is adjusted for net unrealized gains/(losses).
2 The comparative figures have been restated for IFRS 17. The restatement does not apply to Farmers Exchanges’ figures.
3 Total shareholder return in U.S. dollars (from January 1, 2016 to December 31, 2023). Peers include Allianz, AXA, Chubb, Generali, Travelers (unweighted average). Source: Datastream.
4 Based on year-end exchange rates, i.e., 1 CHF = 1.1874 USD as of December 31, 2023 and 1 CHF = 1.0813 USD as of December 31, 2022.
5 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.
6 The adjusted Earnings per Share (EPS) growth of 20 percent is based on the 2022 baseline EPS and the 2023 adjusted EPS. The 2022 baseline EPS assumes the achievement of the 5 percent EPS CAGR target for the 2020 to 2023 financial cycle (i.e., EPS of USD 32.1). The 2023 adjusted EPS (i.e., USD 38.5) substitutes actual net capital losses with net capital gains expected under long term market assumptions.
7 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.
Financial calendar
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15 March
Results
Annual Report 2023
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10April
Annual General Meeting
Annual General Meeting 2024
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16May
Results
Update for the three months ended March 31, 2024
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.