Zurich Insurance : 2023 Half Year Earnings Release

News Release

August 10, 2023

Ad hoc announcement pursuant to Art. 53 of the Listing Rules

Zurich reports 8% earnings per share growth in first half

• Group business operating profit (BOP) of USD 3.7 billion, matching record H1- 22 levels; highest ever return on equity (BOPAT ROE) at 22.9%
• Earnings per share grows 8% in USD; net income attributable to shareholders rises to USD 2.5 billion
• Strong top-line growth becomes more significant profit driver with
  Property & Casualty (P&C) GWP up 10% and Life new business premiums up 17% on a like-for-like basis1
• P&C BOP strong at USD 2.2 billion, down 6% (underlying up 3%); combined ratio 92.9%
• Strong retail P&C margin improvement vs H2-22, rate increase in H1-23 of 4%; Commercial P&C rate increase at 7% (9% in North America, boosted by re- acceleration in Property)
• Life BOP rises 11% to USD 0.9 billion, up 18% on a like-for-like1 basis
• Farmers BOP of USD 1.0 billion, 1% above the prior-year period; Farmers Exchanges2 continues to focus on improving underwriting performance
• Very strong capital position with Swiss Solvency Test (SST) ratio at 263%3

Zurich Insurance Group (Zurich) delivered strong results in the first six months of the year, matching operating profit at the record high reported in the first half 2022 and laying robust foundations for the 2023-2025 financial cycle.

Group Chief Executive Officer Mario Greco said: "Zurich has made a strong start to the new financial cycle. We have high expectations for the Group's performance and we set targets accordingly. More importantly, we deliver.

"We've achieved a return on equity that's among the highest in the industry, while minimizing volatility, maintaining a strong balance sheet and taking advantage of the growth opportunities available to us.

"Our 2023-2025 targets are our most ambitious yet, but our agility, flexibility and focus on delivering results make me confident that we will achieve them."

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Select financial highlights (unaudited)

(For a more comprehensive set of financial highlights see page 8)

in USD millions, for the six months ended June 30,				Change
unless otherwise stated	2023	20224	in USD5
Business operating profit (BOP)	3,720		3,738	(0%)
Net income after tax attributable to shareholders (NIAS)	2,492		2,344	6%
Business operating profit (after tax) return on common shareholders'	22.9%	21.2%	1.7pts
equity (BOPAT ROE)

Group business operating profit is at the same high level as in the prior year, with 3% growth when measured in local currencies. Net income after tax attributable to shareholders (NIAS) increased 6% to USD 2.5 billion compared with the prior-year period, mainly due to a more favorable net impact from capital gains and losses. NIAS also included USD 0.1 billion of costs incurred related to the repurposing of some of Zurich's own use real estate portfolio.

P&C BOP of USD 2.2 billion saw a 6% reduction year on year. Adjusting for currency movements and the non recurrence of a one-off gain in prior year, BOP rose 3%, supported by higher net investment income. The combined ratio was 92.9%.

In P&C Commercial Insurance, rates increased 7% in the first six months of the year, with increases in North America at 9%, driven by further acceleration in the Property portfolio. P&C retail improved its profitability in the first half compared with the second half of 2022, thanks to pricing actions taken last year as well as additional premium rate increases of 4% in the first half of 2023. The Group anticipates these effects to continue through the second half of 2023 and beyond. Farmers Exchanges2 and Farmers Management Services are expected to benefit from similar trends, with rate increases also driving growth.

Life BOP rose 11% to USD 0.9 billion. On a like-for-like basis,1 it increased 18%, with growth in EMEA, North America and Latin America more than compensating for a reduction in Asia Pacific.

Farmers BOP rose 1% to USD 1.0 billion compared with the prior year, driven by an increase in fee income at Farmers Management Services. This was partially offset by the impact of transaction costs at Farmers Life as well as the underwriting loss in Farmers Re following elevated catastrophe losses at the Farmers Exchanges.2

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Business performance

Property & Casualty

				Change
in USD millions, for the six months ended June 30,			Change	like-for-
unless otherwise stated	2023	20224	in USD5	like1,5
P&C business operating profit (BOP)	2,247	2,379	(6%)	(2%)
P&C gross written premium and policy fees	24,560	22,753	8%	10%
P&C insurance revenue	20,163	18,648	8%	10%
P&C combined ratio	92.9%	91.6%	(1.3pts)

• Property & Casualty (P&C) business operating profit down 6% to USD 2,247 million, driven by currency effects and the absence of a one-off gain in the prior year while maintaining a strong combined ratio

P&C business operating profit (BOP) of USD 2,247 million was 6% lower than in the previous year. In local currency, first half P&C BOP was 2% lower than in the previous year, driven by a higher combined ratio and the absence of a non-recurring gain from a real estate transaction in the prior year. This was partially offset by an improved investment result.

The combined ratio increased 1.3 percentage points year over year to 92.9% as the Group continues to maintain a cautious approach to reserving to minimize volatility.

Retail P&C saw a material improvement in margins in the first half of 2023 compared with the second half of 2022, with the accident year combined ratio (excluding catastrophes) improving by 2.9 points to 97.0%. Commercial P&C maintained strong returns with an accident year combined ratio (excluding catastrophes) of 90.1%, compared with 90.4% in the second half of 2022.

Gross written premiums grew 10% on a like-for-like1 basis, adjusting for currency movements, with growth in both retail and commercial insurance across all regions. In EMEA, growth was driven by a strong performance across the region, particularly in UK, Switzerland, Germany and Italy. North America continued to benefit from higher rates, particularly in property and motor lines. Asia Pacific saw a strong recovery in the travel insurance business and growth in the retail motor business while Latin America showed strong commercial growth and increased retail sales across the region. In U.S. dollars, the Group's gross written premiums rose 8%.

The Group achieved price increases of about 6% in the first half of the year, supported by a commercial insurance rate change of 7% and a recovery in the retail business.

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Life

				Change
in USD millions, for the six months ended June 30			Change	like-for-
unless otherwise stated	2023	20224	in USD5	like1,5
Life business operating profit (BOP)	939	847	11%	18%
Life present value of new business premiums (PVNBP)	8,242	7,283	13%	17%
Life new business contractual service margin (NB CSM)	536	625	(14%)	(10%)
Life insurance revenue, short-term contracts	1,089	1,012	8%	8%
Life fee revenue, investment contracts	316	247	28%	30%

• Life BOP rises 11% to USD 939 million; new business premiums up 13% to USD 8,242 million

The Group's Life business delivered a strong performance during the first half of the year, with growth in BOP and new business premiums.

In the first half of the year, life insurance new business premiums increased 13% in U.S. dollar terms and 17% on a like-for-like1 basis. Growth was mainly driven by retail savings sales in Spain, protection sales in Japan, which rebounded from a low level in the prior year, and higher sales in Brazil through the Group's joint venture with Banco Santander. New business written in the first half added USD 536 million to the contractual service margin (CSM), 14% less than in the prior year due to lower new business margin, mainly reflecting a less favorable business mix.

Short-term insurance contracts, predominantly related to the Latin America protection business, generated USD 1,089 million of insurance revenue in the first half, up 8% year on year. Fee revenue generated by investment contracts, which are mainly written in EMEA, grew 28% to USD 316 million.

First-half BOP of USD 939 million was up 11% compared with the prior-year period, despite U.S. dollar appreciation against other major currencies. On a like-for-like1 basis, Life BOP improved by 18%. The improvement was driven by profitable growth in Latin America, favorable experience in North America, as well as increased BOP in Europe, Middle East & Africa (EMEA) due to higher CSM amortization, strong fee result, and the non-recurrence of transition adjustments seen in 2022. This more than compensated for

1. reduction in Asia Pacific's BOP, which was affected by an unfavorable year-on-year fluctuation in claims experience.

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Farmers

in USD millions, for the six months ended June 30			Change
unless otherwise stated	2023	20224	in USD5
Farmers Exchanges2
Gross written premiums	13,572	13,503	1%
Gross earned premiums	13,101	12,642	4%
Combined ratio	111.6%	104.4%	(7.2pts)
Surplus ratio6	30.2%	35.0%	(4.8pts)
Farmers
Farmers business operating profit (BOP)	993	982	1%
Farmers Management Services (FMS) fee income	2,251	2,218	2%
Farmers Life present value of new business premiums (PVNBP)	408	436	(7%)
Farmers Life new business contractual service margin (NB CSM)	55	52	5%

• Farmers BOP up 1% compared with prior year as increase in fee income at FMS offset by underwriting loss in Farmers Re and transaction costs in Farmers Life

The Farmers Exchanges,2 which are owned by their policyholders, reported gross written premiums growth of 1% in the first half of the year. The reduction in commercial rideshare business volumes in the first quarter dampened the benefit of increased rates following a continued focus on improving the underwriting performance. On an underlying basis, excluding the commercial ride share business, gross written premiums increased by 5%. Gross earned premiums increased by 4% over the same period.

Excluding catastrophe losses, the Farmers Exchanges2 combined ratio improved 1.1 percentage points to 94.1%. The continued strong focus on pricing led to an earned rate impact of 12.5% for the period. The Farmers Exchanges2 surplus ratio6 decreased to 30% as a consequence of the underwriting loss in the period, mainly due to an exceptional frequency of catastrophe losses.

Farmers Management Services (FMS) fee income rose 2% compared with the prior- year period, driven by the increase in gross earned premiums at the Farmers Exchanges.2

Farmers Life new business premiums decreased by 7% to USD 408 million compared with the prior year. This was mainly driven by the adverse impact of higher discount rates, which were only partially offset by higher sales volumes of the universal life