Zurich performs well in 2011 and proposes dividend of CHF 17

“We delivered a good result in a year characterized by natural catastrophes, including devastating earthquakes in Japan and New Zealand as well as exceptional weather-related losses around the globe. This trend continued during the fourth quarter with flooding in Thailand and aftershocks in New Zealand. In challenging economic and market conditions, we maintained our focus on underwriting discipline while continuing to selectively grow the business,” said Chief Executive Officer Martin Senn.

The Board of Directors will propose to the shareholders an unchanged dividend of CHF 17 per share. As in the prior year, the dividend payment is planned from the capital contribution reserve and will be exempt from Swiss withholding tax. The final benefit to shareholders will depend on their individually applicable tax situations.

“This attractive dividend proposal, especially in the light of the current environment, reflects our strong cash flow and capital base as well as our confidence in the success of our business strategy,” Mr. Senn said.

“I am also pleased with the performance of our Group investments, which delivered an excellent total return of 5.4% in times of high volatility and historically low interest rates.”

“We continued to develop our business in emerging markets where the outlook for economic growth remains positive. We closed significant acquisitions in Latin America and Malaysia enhancing Zurich’s footprint in our target high-growth markets,” Mr. Senn said.

“And as announced yesterday, in recognition of the fact that Zurich’s strategic focus has been on insurance for several years, our Board of Directors has proposed changing the name of Zurich Financial Services Ltd to Zurich Insurance Group Ltd at our Annual General Meeting on March 29.”

Robust underwriting discipline combined with a sustained focus on profitability produced strong improvements in the underlying loss ratio of the General Insurance business partly offsetting the effects of the exceptional frequency and overall severity of catastrophe and weather-related loss events. In the Global Life business, increased fee income supported investments to enhance global capabilities and mitigated the impact of the low interest rate environment. Profit increased at Farmers Management Services driven by reduced 21st Century integration expenses and these savings helped compensate for lower revenues from the planned run-off of the 21st Century agency auto book in the Farmers Exchanges, which are managed but not owned by Farmers Group Inc., a wholly owned subsidiary of Zurich. High weather-related losses and a lower average level in the All Lines Quota Share reinsurance contributed to a decline in profit at Farmers Re.

The Group’s capital position remains strong with shareholders’ equity of USD 31.6 billion, despite the volatile financial markets, currency fluctuations and financial market impacts on pension liabilities. This is broadly the same level as of December 31, 2010, after recording the total cost of USD 2.7 billion for dividends in 2011.

As part of the establishment of the 51%-participation in the Latin American insurance operations of Banco Santander, S.A., the Group has appointed senior management and completed acquisitions in Argentina, Brazil, Chile, Mexico and Uruguay in October and November 2011. In Malaysia, the Group closed the acquisition of the composite insurer, Malaysian Assurance Alliance Berhad (MAA), in September 2011.

Segment performance (in the year ended December 31)
Business operating profit from General Insurance decreased by USD 403 million to USD 2.3 billion, or by 15% in U.S. dollar terms and 19% on a local currency basis. The sustained focus on profitability has continued to produce strong improvements in the underlying loss ratio, but these improvements were more than offset by the exceptional frequency and overall severity of catastrophe and significant weather-related loss events. Major catastrophe losses of net USD 1.0 billion after the Group’s regional catastrophe reinsurance protection, but before the Group’s worldwide aggregate catastrophe treaty, arose from floods and earthquakes in the Asia-Pacific region and hurricanes in the U.S. in 2011, compared with major catastrophe losses of USD 275 million in 2010 due to the earthquake in Chile and floods in Australia.

Gross written premiums and policy fees increased by USD 1.5 billion to USD 34.6 billion or by 5% in U.S. dollar terms, but remained flat on a local currency basis. As a result of the strategy to maintain margins, average rates increased by over 3%, an improvement of 1 percentage point compared with 2010. Despite these rate increases, customer retention levels improved slightly compared with 2010. Premiums increased 10% on a local currency basis in International Markets, driven by growth of 21% in Latin America as well as rate increases and growth of 5% in Asia-Pacific. In the North American market, rates have improved, while growth has been generated in targeted customer segments. European volumes continued to decline on a local currency basis, mainly due to underwriting actions implemented to improve profitability, but also due to the depressed levels of economic activity in certain European markets.

Global Life
New business value after tax reached USD 980 million, an increase of 14% in U.S. dollar terms and 7% on a local currency basis, following a methodology refinement for the calculation of new business value for the corporate protection business, which is more reflective of the underlying economics. Excluding this refinement, new business value after tax was flat in U.S. dollar terms and reduced by 5% in local currency. Volume growth was more than offset by a reduction in new business margin of 1.2 percentage points in local currency. Overall new business margin for the year remains at a strong level of 21.6% excluding the methodology change and 24.5% including the change. New business margin was positively impacted by an increase in the proportion of protection business sold while the impact of lower interest rates in Europe and assumption changes in North America reduced the margins.

Global Life continues to make progress toward its strategic objective of diversifying into the higher growth markets of Latin America and Asia-Pacific and Middle East. The new business annual premium equivalent (APE) and new business value (NBV) generated by growth in these regions largely mitigated challenging market conditions in individual life business in Europe. Growth in NBV in Latin America came from the individual protection and Corporate Life & Pensions business while in Asia Pacific and the Middle East growth was driven by the corporate savings business and the International/Expats pillar. In Europe, NBV grew in Private Banking Client Solutions and Corporate Life & Pensions in the UK. Business volumes in Germany, Ireland and Spain declined due to the challenging market conditions while focus on underwriting discipline was continued.

Global Life business operating profit decreased by USD 121 million to USD 1.4 billion, or by 8% in U.S. dollar terms and 14% on a local currency basis. Increased fee income and higher margins from protection business were more than offset by financial market related impacts and increased costs related to investments in the global operations strategy.

Farmers
Management fees and other related revenues from Farmers Management Services were flat despite lower revenues due to the run-off of the 21st Century agency auto book of business in the Farmers Exchanges. This effect was partially offset by continued increases in gross earned premiums in the Farmers Exchanges. The premium increases are attributable to 21st Century direct as well as business and specialty insurance. The managed gross earned premium margin at Farmers Management Services remained flat at 7.3% compared with the prior year. Gross written premiums in the Farmers Exchanges increased by USD 166 million to USD 18.3 billion. This was driven by premium growth in nearly all active lines of business, reflecting the accelerating underlying growth momentum during the latter part of 2011. Excluding the run-off of the 21st Century agency auto book, gross written premiums increased by 2% compared with 2010. In Farmers Re, gross written premiums and policy fees decreased by 16% to USD 3.5 billion due to the change in the participation level of the All Lines Quota Share reinsurance agreement, which in combination with a significant increase in weather-related losses resulted in a decreased business operating profit of USD 116 million. Overall, Farmers reported a business operating profit of USD 1.5 billion.

Other Operating Businesses: Other Operating Businesses, predominantly consisting of the Group’s headquarter expenses and external financing activities, reported an increased business operating loss of USD 835 million, up USD 34 million from 2010. This was impacted by the effects of a strong Swiss franc and positive one-off items in 2010.

Non-Core Businesses: Non-core businesses reported a business operating loss of USD 8 million compared with a loss of USD 157 million for 2010. They comprise primarily run-off portfolios that are managed with the intention to reduce risk while maximizing profit opportunities. The improvement resulted mainly from lower banking loan loss provisions of USD 128 million compared with USD 349 million in 2010.

Group investments
The net investment result on Group investments, which includes investment income, realized gains and losses and impairments, contributed USD 9.4 billion to the Group’s total revenues for the year ended December 31, 2011, a net return of 4.8%. This is a strong performance given the low interest rate environment and market volatility. Net realized capital gains on investments including impairments amounted to USD 2.2 billion. These included USD 1.1 billion of net capital gains realized from active management, impairments of USD 458 million, as well as USD 1.5 billion of positive asset revaluations, of which USD 880 million are gains from economic hedges. Net unrealized gains reported in shareholders’ equity increased by USD 1.1 billion since December 31, 2010, mainly driven by falling interest rates, particularly in the second half of the year. Total return on Group investments, which includes investment income, realized gains and losses and impairments as well as change in unrealized gains and losses reported in shareholders’ equity, was 5.4%. The Group continues its disciplined approach and closely monitors its investments in eurozone peripheral government debt to ensure risk is well-balanced and diversified.

Contact
Zurich Financial Services Ltd Mythenquai 2 8022 Zürich Media Relations Tel. 044 625 21 00 Fax 044 625 26 41 media@zurich.com

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