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."

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.

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%.

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.

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.

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