Transcript Call Date 11/15/2012
Martin Senn - CEO: Welcome to Zurich Insurance Group's results presentation for the first nine months of 2012. Our Group delivered strong underlying profitability over the period, thanks to our continued focus on pricing discipline and portfolio management. The discrete third quarter results were adversely affected by the previously reported adjustment in our German General Insurance business. I'm disappointed by this particular as it masks a strong performance in the rest of the business and we are taking actions to address it. We were particularly pleased with the sustained top line growth in our target markets which includes some mature markets notably the United States where we are celebrating 100 years of doing business and our continued success in high potential growth markets in Latin America and Asia.
The Group's capital position remains strong and well within our AA target range, underpinned by our continued focus on risk management in both our disciplined investment and underwriting strategies. While we have seen some improvements in North America the economic environment in which we are operating remains challenging especially in Europe. Nevertheless we remain focused on executing our strategy and are on track to deliver on our strategic targets for 2013.
So let's have a closer look at the numbers. Business operating profit for the first nine months of this year was U.S.$3.2 billion unchanged from the comparable period despite the adjustment of U.S.$550 million in our German General Insurance business in the discrete, third quarter. Net income attributable to shareholders was U.S.$2.7 billion, down 16% due to lower net capital gains compared to the prior year period. Despite the adjustment, General Insurance delivered a gain in business operating profit and has continued to make good progress on delivering its strategic targets through disciplined underwriting and expense management.
The business has achieved average rate increases of 3.6% and the underlying loss ratio for the nine months improved by 2.8 percentage points to 61.6%. The overall combined ratio improved by 1.2 points to 97.6%. Premium volumes in European markets have been under pressure because of the subdued economic environment there, but this was more than offset by premium growth in North America and the continued expansion in our target markets.
Global Life continued to show the positive impact of organic growth in U.S., U.K. and Latin America. Our acquisitions in Latin America and Asia Pacific will further strengthen this growth, though they are not included in new business results for this reporting period. Results were once again, are grossly affected by the challenging environment in Europe and persisting low interest rates, while the gross written premiums, policies fees and insurance deposits increased strongly and the segment continues to shift its product mix to its protection and fee-based business.
At Farmers profitability and at the Management Services company rose on the back of an increase in gross earned premiums in the Farmers Exchanges, which are managed but not owned by Farmers Group, a wholly owned subsidiary of the Group. This was offset by weather-related losses and the absence of favorable prior year loss development at Farmers Re. Farmers Management Services gross earned premium margin was little changed at 7.4%.
Transcript Call Date 11/15/2012
Operator: Michael Klien, Nomura.
Michael Klien - Nomura: My first question would be on the new business value on the Life side. You mentioned that with the adjustments in the prior periods that would have been flat. Considering that AP was up 12%, obviously the margin is still down year-over-year. Can you maybe provide us with some more granularity to the changed margin mix and also how we should expect this to change in the coming quarters? Should we be expecting a return to the old margin, or is this now the new level of profitability? And also in this regard, could you help me understand why in Switzerland you're again writing Life business with a negative new business margin in Q3 as you did in Q2? And my second question would be on asbestos actually. We saw Swiss Re this quarter increasing reserves. Are you seeing any reason that you should look at asbestos reserves in the U.K. again? And also can you maybe remind us what the timing is of your regular detailed reserve reviews on asbestos, specifically?
Pierre Wauthier - CFO: Michael, I'll try to summarize in first. The first was on the new mid business margin being down and what should you make out of it. The second question was on Switzerland also in Life, and why are we writing at the negative margins. I like to highlight the margin year-to-date is positive. And then on reserves, as I understood it correctly, there were two questions; one was what should we think about the level of reserves and more specifically when were the reserve reviews occurring and with that what should we think about U.K. asbestos? So let me take each of them in order. With regards to the new business margin it's down 21%. It's essentially due to a very specific business which we wrote in Chile which is a biannual business where the characteristics of this business, is actually to have a new business margin. It's something therefore that is a one-off and has been influenced by this very specific business. I'd like to remind you that the way we look at the business is much more on a return on risk based capital employed and from that perspective the business is exceeding our hurdle rates. So we are very happy with the business. It's just that the new business margin doesn't reflect the risk return and therefore it has had an impact in this quarter. This is a business that you write once so it is recorded and therefore would not have an impact in the coming quarters. We continue to write our business generally at the same levels of profitability that we are targeting. If I move on now to the second question, which is Switzerland, now the new business value for Switzerland was still $4 million. Agreed, it's not very high. I think what you have to recognize is within the new business value there are actually two parts. One is the business that we are truly developing which is more under Corporate Life & Pensions side where the margins are satisfactory but you also get some business, i.e., new premium paid from old business as well as distribution of still traditional products to the agents, which put a downward pressure on margin. If I move then on to the reserves, so just to point out that year-to-date the development of reserve has been 2.9% positive or $617 million, and then, of course, this is reduced by the Germany adjustment, which still keeps the reserve development positive for the year even after you include that. So, from that perspective the development is not as positive, but it is still positive. As I mentioned in the webcast, the reserve margins are also unchanged. Finally, with regards to the reserve review, we perform a review on an ongoing basis, including, of course, with the long-tail line of business, specifically for the U.K. asbestos. We have continued, of course, to monitor it carefully, and we see trends being in accordance with our expectations.
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