Zurich Financial Services' CEO Discusses Q4 2011 Results - Earnings Call Transcript
Zurich Financial Services Ltd. (
)
Q4 2011 Earnings Conference Call
February 16, 2012 4:30 AM ET
Executives
Debra Broek – Head, IR
Martin Senn – CEO
Pierre Wauthier – CFO
Analysts
René Locher – MainFirst
Spencer Horgan – Deutsche Bank
Farooq Hanif – Morgan Stanley
Fabrizio Croce – Kepler
Andy Broadfield – Barclays Capital
Brian Shea – Bank of America Merrill Lynch
Andrew Ritchie – Autonomous
Michael Huttner – JPMorgan
Presentation
Debra Broek
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Good morning, everyone. Welcome to Zurich and welcome to Zurich Financial Services Annual Results Reporting for 2011. Just a friendly reminder to please turnoff your mobile phones or other gadgets that you might have with you, so we’re not disrupting the presentation or the Q&A time.
And it’s my pleasure then to turn it over to our CEO, Martin Senn. Martin.
Martin Senn
Thank you very much, Debra, and good morning, ladies and gentlemen. Today we are proud to present to you our annual results for 2011 showing good profitability despite unprecedented level of catastrophe and weather-related losses and despite a very challenging market environment.
We continue to generate strong cash flows. We have a strong capital base and solvency position. We are growing where we want to grow and thanks to our resilient performance in 2011 and the continuing execution of our strategy, we are well positioned to outperform in a challenging environment. And this gives us the confidence to maintain our dividend at CHF17 per share which is, as the dividend payment will be paid from the capital contribution reserve, exempt from Swiss withholding tax.
Now, let me give you some highlights before my colleague, Pierre Wauthier, explains these numbers in more and in greater detail. Business operating profit was $4.3 billion, a decline of 12%, while net income after tax attributable to shareholders was $3.8 billion, 10% higher than in 2010. These are strong numbers in a year characterized by a challenging global economic environment and an exceptionally high level of catastrophe losses and weather-related losses. Industry-wide, these losses were more than twice the level seen in 2010 and more than three times the average of the last 10 years. We have also benefited from strong risk management actions and gains from investments including the sale of part of the Group’s stake in New China Life Insurance.
Despite the challenging environment in which we are operating, our return on equity was close to 12% and our business operating profit after tax return on equity came in at 10.2%, reflecting the impact of the exceptionally high level of catastrophe and weather-related losses.
Our underlying businesses continue to perform well and to execute on their strategies with solid improvements in their underlying performance and continued focus on driving growth and value in Global Life and Farmers and in General Insurance, achieving selected growth in those areas where we can do so profitably.
In General Insurance, efficiency enhancements and robust underwriting actions reflecting our sustained focus on profitability produced a strong 2 percentage point improvement in our underlying loss ratio. And the exceptional frequency and overall severity of catastrophe and significant weather-related losses nevertheless impacted the combined ratio, which deteriorated to 98.8%.
Our Global Life business continued to grow new business value in certain mature markets and particularly in emerging markets. And this is in line with our objectives and we expect this trend to continue as we embed our acquisition in Malaysia and as well the alliance with Banco Santander in Latin America.
Meanwhile, Farmers delivered growth in premiums in all continued business lines, except for homeowners. The growth momentum accelerated through the year as Farmers continued to execute on its multichannel and multi-brand strategy, building the strength of its brands and expanding its customer reach.
As to our capital position, shareholders’ equity remained stable at broadly the same level as of December 31
st
in 2010 after recording the total cost of paying $2.7 billion of dividends in 2011. The strength of this performance is what gives us the confidence to pay such an attractive dividend.
And this slide shows our dividend history, including the proposed dividend of CHF17 for 2011. As you know, the dividend is subject to shareholder approval at our Annual General Meeting on March 29. Our policy is to pay an attractive and sustainable dividend, and the proposed dividend reflects both our strong performance and our continuing confidence in our strategy which has helped us to deliver profits in every quarter since the current economic crisis began, and in fact since 2002. We are successfully managing the current volatility and we are prepared for the challenges ahead.
Our continued focus on financial and underwriting discipline and the effective execution of our strategy has enabled us to deliver strong results and to continue to generate strong cash flows from which we can sustain an attractive dividend. We are on track to deliver our targets by 2013. Our capital and solvency positions remain strong and we have a strong platform from which to grow our business selectively in mature markets and into high-growth markets.
In 2011, we were able to selectively capture growth through our alliance with Banco Santander in Latin America and our acquisition in Malaysia as well as through the renewal of our distribution agreement in Germany and Italy with Deutsche Bank.
We will continue to seek out new opportunities to grow our business through acquisitions, joint ventures and alliances. And we will strive for organic growth by improving our customer proposition, reviewing our product portfolio, using technology to know our customers better and by investing in our people, our processes and our systems.
But this growth will never come at the cost of the financial and underwriting discipline.
We are managing the present with confidence and we are leveraging our strong position to prepare for the future. We believe that in markets like these our strength is a critical advantage in capturing new opportunities. And we have clear criteria and are committed to acting on opportunities that meet these criteria and we will do this as usual “The Zurich Way,” with discipline and with focus. And in recognition of this and the fact that Zurich has now been focused on insurance for several years, our Board of Directors will propose changing our name from Zurich Financial Services to Zurich Insurance Group at our Annual General Meeting on March 29.
Our results for 2011 show that our strategy is working and as we highlighted at our Investor’s Day in December, we are confident on how to further build on this growth momentum.
And on that note, I would like to ask my colleague, Pierre, to talk you through last year’s business performance in much more detail. Thank you very much. Enjoy the presentation, Pierre.
Pierre Wauthier
Well, thank you, Martin, and good morning, ladies and gentlemen. I am pleased to present the year-end results for the Group. During 2011, we have progressed towards our targets and continued our underwriting discipline, while growing selectively in mature markets and continuing to expand in high-growth markets. This has been an exceptional year, hit with the worst catastrophes and weather events recorded of over $105 billion. Our customers have suffered enormously as they were hit by floods, earthquakes and tornadoes. But this is our business, so we have been very proactive managing claims and delivering when it mattered to our customers.
2011 has also been a year of increased market volatility and volatile credit spreads, as well as continued low interest rates, particularly in the Euro zone as you know. We have weathered the storm well. Thanks to our risk-based approach to managing our assets relative to our liabilities.
Now turning to the fourth quarter, our business operating profit of $1 billion declined compared to last year, as we recognized losses from the Thailand floods of $275 million, as well as further losses from the New Zealand earthquakes of $80 million. We benefitted however from our global aggregate reinsurance recovery in the amount of a $130 million. The net effect of all these was a reduction of $225 million on our fourth quarter results. In addition, the fourth quarter net income attributable to shareholders of $557 million on the lower chart, reflects mark-to-market adjustments as well as a higher tax rate and an accrual for current and future charitable contributions of $100 million pre-tax, reflecting our commitment to society. We have progressed on our announced expense target of $500 million for the Group by 2013, achieving over $100 million of run rate direct expense savings from mature markets.
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