ZURICH: 2018 Financial Condition Report

Zurich Insurance Group (Zurich) has published its Financial Condition Report 2018, highlighting a good financial condition and exceeding solvency requirements.


Company results

  • Business operating profit (BOP): USD 4.6 billion (+20%)
  • P&C BOP: USD 2.1 billion (+35%)
  • Life BOP: USD 1.6 billion (+23%)
  • Farmers BOP: USD 1.6 billion (- 3%)
  • P&C GWP and policy fees: USD 33.5 billion (+1%)
  • P&C combined ratio: 97.8% (- 3.1 pts.)
  • Life GWP and policy fees: USD 14.8 billion (+5%)
  • Farmers GWP: USD 20.3 billion (+2%)
  • Average Group investments: USD 190.2 billion



Economic risk profile


Zurich's main quantitative risk management tool is our internal economic capital model Z-ECM. Z-ECM is an integral part of how the Group is managed. Z-ECM quantifies the capital required for insurance-related risk (including premium and reserve, natural catastrophe, business and life insurance), market risk including investment credit risk, reinsurance credit risk, other credit risk, and operational risk.

  • Total Z-ECM capital required: USD 31.0 billion
    • 49% - Insurance risk
    • 45% - Market risk, including investment credit risk
    • 4% - Operational risk
    • 2% - Other credit risk
The Group's Z-ECM ratio has decreased from 132% (2017) to 124% as of January 1, 2019. The development of the Z-ECM ratio in 2018 was driven mainly by financial market performance, economic profit generation, and selective acquisitions.



Valuation for SST purposes

The market value of Investments decreased by USD 11.4 billion from USD 196.9 billion as of 2017 to USD 185.5 billion as of 2018.

The market-consistent value of total Other assets increased by USD 0.2 billion from USD 28.1 billion in 2017 to USD 28.3 billion in 2018.

The market value Best estimate of insurance liabilities decreased by USD 25.7 billion from USD 318 billion as of December 31, 2017 to USD 292.3 billion as of December 31, 2018. Shares of reinsurers in the insurance reserves decreased by USD 21.1 billion from USD 38.7 billion in December 31, 2017 to USD 17.6 billion in December 31, 2018. The market value of Other liabilities has decreased by USD 1 billion from USD 34.8 billion as of December 31, 2017 to USD 33.8 billion as of December 31, 2018.



Capital management

The Zurich Insurance Group manages its capital to maximize long-term shareholder value while maintaining financial strength within its 'AA' target range, and meeting regulatory, solvency and rating agency requirements.

In particular, the Zurich Insurance Group endeavors to manage its shareholder's equity of USD 30.2 billion, subordinated debts of USD 6.8 billion and senior financial debts not maturing within the next year of USD 2.4 billion as part of the capital available in the Zurich Insurance Group's economic framework.

Further adjustments usually include such items as intangible assets, deferred tax assets and liabilities, or allowing for discounting of liabilities and the value of in-force business, as presented in the market-consistent balance sheet.



Solvency

FINMA has established the Swiss Solvency Test (SST) to assess risk quantitatively. Zurich reports the SST ratio annually to FINMA. The risk categories follow FINMA guidelines and focus on insurance, market and credit risk.

The Group uses an adaptation of its internal Zurich Economic Capital Model (Z-ECM) to comply with the Swiss Solvency Test (SST) requirements.

In 2018, Zurich continued to enhance its internal model, advanced the approval process with FINMA, and has received approval for specific enhancements of the model.

Based on the enhanced SST internal model the SST ratio as of January 1, 2019 stands at 221%, 5 percentage points higher compared to SST ratio as of January 1, 2018. Following the favorable model change impact, the SST ratio remains stable as the strong operational capital generation from the businesses is offset by negative financial market movements in the latter part of the year and the dividend accrual.



Acquisitions

  • Blue Insurance - On October 3, 2018, Cover-More Australia Pty Ltd, a fully owned subsidiary of Zurich Insurance Company Ltd, completed the acquisition of Blue Insurance Ltd (Blue Insurance), an Irish domiciled insurance intermediary acquired for approximately USD 64 million.
  • Adira Insurance - On September 27, 2018, Zurich Insurance Group entered into agreements to acquire 80 percent of PT Asuransi Adira Dinamika (Adira Insurance) from PT Bank Danamon Indonesia (Bank Danamon) and a minority investor for approximately USD 414 million, with potential future incremental payments based on business performance.
  • EuroAmerica portfolio in Chile - On April 20, 2018, the Group announced it had entered into an agreement to acquire the individual and group life insurance portfolios as well as the long-term savings operations of EuroAmerica in Chile.
  • Travel Ace and Universal Assistance - On March 12, 2018, the Group announced the acquisition of Travel Ace and Universal Assistance, the leading providers of traveler assistance in Latin America for approximately USD 82 million.
  • QBE Latin America - On February 24, 2018, the Group entered into an agreement to acquire the Latin American operations of the Australian insurer QBE Insurance Group Limited (QBE) with operations in Argentina, Brazil, Colombia, Ecuador and Mexico, subject to regulatory approvals.
  • ANZ life and consumer credit insurance business - On December 11, 2017, the Group announced that it had entered into an agreement to acqire 100 percent of the Australian life insurance and consumer credit business (One Path Life) of Australia and New Zealand Banking Group Limited (ANZ) for AUD 2.85 billion (USD 2 billion), subject to a purchase price adjustment.



About Zurich Insurance Group


Zurich Insurance Group is a leading multi-line insurer that serves its customers in global and local markets. With about 54,000 employees, it provides a wide range of property and casualty, and life insurance products and services in more than 210 countries and territories. Zurich's customers include individuals, small businesses, and mid-sized and large companies, as well as multinational corporations.

Source: ZURICH Financial Condition Report 2018



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