Zurich starts 2023 with strong top-line growth

• Property & Casualty insurance revenue up 7%, with growth of 11% on a like-for-like¹ basis, driven by strong growth in commercial insurance and further improvement in pricing
• Commercial insurance margins improve as a result of higher prices and higher interest rates, partially offset by continued elevated loss cost trends in retail
• New business in Life adds USD 265 million of contractual service margin in the quarter; new business premiums (PVNBP) up 23% on a like-for-like¹ basis
• Farmers Exchanges² gross written premiums down by 3%, impacted by the commercial rideshare business, partially offset by strong improvement in pricing
• Capital position very strong with Swiss Solvency Test ratio estimated at 258%³ as of March 31, 2023
• Proactive capital allocation continues with reinsurance agreement of the in-force individual life insurance book of Farmers New World Life and planned sale of Chilean annuity book

Group Chief Financial Officer George Quinn said: “The Group has made a strong start to the new financial cycle. We saw robust growth in Property & Casualty (P&C), with a double-digit increase in premiums in North America, mainly driven by rate increases. Underlying commercial insurance margins have continued to improve but we are being cautious about recognising the full benefit as we gain familiarity with the new accounting standard. Retail markets are seeing higher prices on renewal and margins will improve over the course of the year as earned rates start to exceed loss cost trends. Our Life business has seen strong growth in new business volume, while in the short term, business mix has reduced margins. The Farmers Exchanges² saw underlying growth while focusing on improving the underwriting result. We have also announced two further back book transactions, which mark an important step in our commitment to reduce volatility and improve the quality of returns. These transactions also create the potential to deliver returns at even higher levels in the future. These are our first financial results under IFRS 17. I would like to thank all my colleagues for their hard work to reach this milestone. We have had a strong start to the year and our new financial cycle and we remain focused on executing our strategy.”

P&C insurance revenues grew strongly in the first quarter with all regions contributing to growth. Commercial insurance further improved its high level of returns while retail rates started to increase. North America displayed a strong performance, delivering about 50% of total P&C growth on a like-for-like¹ basis.

Life new business added USD 265 million of contractual service margin (CSM) in the quarter, 11% below the prior-year period on a like-for-like¹ basis. This was driven by higher new business premiums with lower margins mainly due to a less favorable business mix.

Gross written premiums (GWP) at the Farmers Exchanges² were down by 3% compared with the prior-year period, impacted by the commercial rideshare business. The focus on improving the underwriting performance saw the business deliver continued strong pricing momentum.

As of March 31, 2023, Zurich’s Swiss Solvency Test (SST) ratio is estimated at 258%³ and remains well in excess of the Group’s ≥160% target level.

Focused execution of the customer strategy helped the Group to further improve customer satisfaction, with the retail net promoter score increasing by 1.5 points in the first quarter.

The new IFRS 17 reporting standards intend to make the financial statements of public insurance companies more consistent, transparent and comparable. For P&C, the Group has continued to report gross written premiums, but now also shows insurance revenue. The transition to IFRS 17 also impacts how the Group presents metrics in Life, which now reports new business premiums and the associated incremental contractual service margin (CSM) for certain contracts. Life also reports net inflows for investment contracts and insurance revenue for short-term life business. A financial supplement for full-year 2022 results under IFRS 17 and an explanatory presentation is available here. A glossary of terms is available in the Appendix.

Continued pro-active capital allocation

Zurich has taken further important steps to refocus the Group’s Life business to provide high quality protection and unit-linked solutions. The Group has entered into an agreement with Resolution Life Group to reinsure the in-force individual life insurance book of Farmers New World Life Insurance Company (FNWL), a subsidiary of Farmers Group, Inc. The ceding commission is just over 16 times the average of recent remittance payments. The Group will receive after tax proceeds of USD 1.8 billion and retain the risks and rewards of the business until the effective date, currently expected to be August 1, 2023. Other metrics such as capital and leverage are not significantly impacted by the agreement.

Zurich has also agreed to sell its annuity book in Chile to Ohio National Seguros de Vida S.A.

Both transactions are subject to regulatory approval.

Given the transition to IFRS 17 and the continuing share buyback Zurich expects little to no earnings dilution from its activities to improve capital allocation in the Life business.

Gross written premiums (GWP) in P&C rose 10% compared with the prior-year period on a like-for-like¹ basis, adjusting for currency movements. They rose 6% in U.S. dollar terms, reflecting the stronger U.S. dollar against major currencies.

Growth was supported by higher premium rates in P&C, with commercial insurance experiencing a 6% increase in rates.

In Europe, Middle East and Africa (EMEA), GWP increased 5% on a like-for-like¹ basis. Growth was driven by strong performance, most notably in the UK and Switzerland. Premium rates increased 5% in commercial insurance and 4% in retail insurance.

GWP in North America grew 10% on a like-for-like¹ basis compared with the previous year. Strong growth across all lines of business was supported by further rate increases, which more than offset Zurich’s actions to reduce exposure to natural catastrophe losses. For 2023, crop volumes are expected to reduce year-on-year due to commodity price developments.

In Asia Pacific, GWP increased 18% on a like-for-like¹ basis compared with the previous year. Rebounding travel insurance sales in Australia and higher retail sales across the region were the main contributors.

Latin America saw an increase of 24% in GWP on a like-for-like¹ basis, benefiting from strong commercial growth and increased retail sales across the region.

In the first quarter, new business premiums increased 17% in U.S. dollar terms, and 23% on a like-for-like¹ basis. Growth in local currencies was partially offset by the appreciation of the U.S. dollar against major currencies.

In EMEA, new business premiums grew 23% on a like-for-like¹ basis, compared with the same period in 2022. This growth reflects large sales volumes of a retail savings product in Spain, written by the Group’s joint venture with Banco Sabadell. This more than offset the adverse impact of lower sales volumes in Italy and Switzerland and higher discount rates in the region.

In North America, new business premiums was 41% lower on a like-for-like¹ basis compared with the prior-year period, driven by lower sales in the corporate business.

In Asia Pacific, new business premiums grew 42% on a like-for-like¹ basis. This was driven by higher protection sales in Japan, which rebounded from a low level in the prior year.

In Latin America, new business premiums increased 25% on a like-for-like¹ basis, benefiting from higher sales in Brazil through the Group’s joint venture with Banco Santander.

New business written in the first quarter added USD 265 million of contractual service margin (CSM), which will be earned over time and converted into operating profit. New business CSM was 11% lower on a like-for-like¹ basis compared with the first quarter of 2022. This was due to a reduced new business margin⁴ of 6.4% in the first quarter compared with 9.0% in the prior-year period. The reduction was mainly driven by a less-favorable business mix.

Investment contracts, which are mainly written in EMEA, as well as short-term life insurance contracts, which are mainly related to the protection business in Latin America, do not contribute to CSM as they are reported using different measurement models.⁵ Net inflows for investment contracts amounted to USD 688 million in the first quarter, 31% below the prior year on a like-for-like¹ basis. This was driven by lower net inflows in Switzerland, which were partially offset by higher net inflows in Ireland. Insurance revenues from short-term life insurance amounted to USD 529 million in the first quarter, up 8% compared with the prior year on a like-for-like¹ basis, driven by growth in both the Group’s joint venture with Banco Santander and the Zurich-branded business.

The Farmers Exchanges², which are owned by their policyholders, reported a reduction in GWP of 3% in the first quarter of the year. This was largely driven by the commercial rideshare business, and partially offset by the net benefit of increased rates following a continued focus on improving the underwriting performance. Gross earned premiums increased by 5% in the quarter.

The Farmers Exchanges² surplus ratio decreased slightly to 34% as a consequence of the underwriting loss in the quarter.

Farmers Management Services (FMS) management fees and other related revenues rose 1% compared with the prior-year period. A lower IFRS 15 gross-up reduced the favorable impact from the 5% increase in gross earned premiums at the Farmers Exchanges.² This gross-up is fully offset within the expense line and has no impact on FMS business operating profit.

Farmers Life new business premiums decreased by 8% compared with the prior-year period to USD 203 million. This was driven by the adverse impact of higher discount rates, which were only partially offset by higher sales volumes of the universal life product. New business CSM increased by 37% to USD 34 million, benefiting from the strong sales as well as modeling changes.

Capital position

As of March 31, 2023, Zurich’s Swiss Solvency Test (SST) ratio is estimated at 258%³ and remains well in excess of the Group’s ≥160% target level. This compares with 267% as of January 1, 2023. The reduction was driven by unfavorable market movements, mainly due to lower interest rates, and a modest negative impact from model and assumption updates.

¹ Like-for-like comparisons represent the change in local currencies. No material impact from acquisitions and disposals.
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 Estimated Swiss Solvency Test (SST) ratio, calculated based on the Group’s internal model approved by the Swiss Financial Market Supervisory Authority FINMA.
⁴ Defined as new business contractual service margin (NB CSM) divided by present value of new business premiums (PVNBP), based on IFRS 17.
⁵ Investment contracts accounted for based on IFRS 9; short-term life insurance contracts accounted for based on the premium allocation approach (PAA). For more details please refer to the presentation “IFRS 17 at Zurich” (September 2022) on the Group’s website (link).
⁶ Parentheses around numbers represent an adverse variance.
⁷ Ratios as of March 31, 2023, and December 31, 2022, respectively.

Appendix

IFRS 17 glossary

Insurance revenue reflects the amount of premium Zurich is entitled to in exchange for insurance services provided in the period to its policyholders. For most P&C and short-term Life contracts, the insurance revenue is similar to gross earned premiums.

New business premiums (PVNBP) is calculated as the present value of new business premiums discounted at the risk-free rate, gross of reinsurance and before the effect of non-controlling interests.

Contractual service margin (CSM) is a separate component of the insurance liability representing unearned profits from in-force Life contracts (excluding short-term and investment contracts), before the effect of non-controlling interests and taxes.

Life net inflows are cash receipts from policyholders (premium), net of cash payments (claims, maturities, surrenders), gross of reinsurance and before the effect of non-controlling interests.

Further information about IFRS 17 at Zurich can be found here.

Further information

IFRS 17 at Zurich

Further information about IFRS 17 at Zurich can be found here. A financial supplement for full-year 2022 results under IFRS 17 is available here and an explanatory presentation can be found here.

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