Zurich announces USD 5.2 billion business operating profit and USD 3.0 billion net income for 2008

Zurich announces USD 5.2 billion business operating profit and USD 3.0 billion net income for 2008

Zurich Financial Services Group (Zurich) announced today a net income1 after tax of USD 3 billion for 2008 as well as a CHF 11.00 gross dividend proposal. While the heightened financial pressures of the latter half of the year led to annual and quarterly reductions in net income and business operating profit, the Group’s disciplined approach to operational and risk management issues generated resilient operating results across its core business segments as well as a positive investment return. Furthermore, the Group’s business operating profit post-tax return on equity continued to remain above its mid-term target of 16%.

“These results illustrate the quality of our business model and the value of our risk and investment management strategies, particularly in view of the rapidly deteriorating global economic environment,” remarked Zurich’s Chief Executive Officer James J. Schiro. “Looking forward, we do not see significant improvements in the economic environment in the near term, but our strong balance sheet, operational capabilities and well-balanced portfolio of businesses position us well to continue executing on our strategy.”

Performance highlights2 include:

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Business operating profit (BOP) of USD 5.2 billion, a decrease of 23%. BOP return on equity (ROE)3 after tax of 16.8%
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Net income of USD 3.0 billion, a decrease of 47 %. ROE of 12.1%
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General Insurance gross written premiums and policy fees of USD 37.2 billion, up 4% or 2% in local currencies, and a combined ratio of 98.1%
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Global Life new business value4, after tax, up 3% to USD 753 million, with new business margin, after tax (as % of APE), of 23.1% and APE up 11% or 10% in local currencies
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Farmers Management Services’ management fees and other related revenues up 8% to USD 2.5 billion
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Shareholders’ equity of USD 22.1 billion, a decrease of 24%
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Diluted earnings per share of CHF 23.35, down 50%

Attesting to its execution capabilities, Zurich managed to generate operating profits in each discrete quarter of 2008. This includes a business operating profit of USD 1.0 billion and net income after tax attributable to shareholders of USD 205 million in the fourth quarter stand-alone, demonstrating the Group’s continued resilience in face of a deteriorating economic environment.

Against the backdrop of a very challenging year, the Zurich Board of Directors will propose to the Annual General Meeting on April 2, 2009 a gross dividend of CHF 11.00 per share, representing a 47% payout of earnings to shareholders and a 26% decrease over last year’s CHF 15.00 gross dividend.

Commenting on the proposed dividend, Mr. Schiro said: “The proposal reflects our confidence in Zurich’s business strategy while balancing the need to retain a strong and prudent solvency position.”

In a year characterized by exceptionally challenging market conditions, Zurich continued to capitalize on its selective growth efforts by delivering profitable growth in attractive life and general insurance markets across Europe, the US and emerging markets. This growth was driven by organically expanding and refining its product base, enhancing distribution capabilities and increasing the effectiveness of Zurich’s customer-focused brand positioning. In addition, the Group continued the successful integration of acquired operations onto the Zurich operating platforms, including eight acquisitions in 2008. Further testaments to these successes were the ability to attract quality hires from across the industry and broaden the talent pool within the organization.

Starting from The Zurich Way (TZW) initiatives, the Group has also continued to transform its operating platforms to bolster the effectiveness and efficiency of its business. The benefits from these initiatives in 2008 comfortably exceeded the after-tax operational improvement target of USD 800 million. In driving these efforts further, the Group has, as already announced, extended and increased its targets under the program to USD 2.7 billion from 2009 to 2011, or USD 900 million for each of the three years.

In addition, the Group continues to assess its previously announced 2009 expense reduction target of USD 200 million and will be taking further cost containment actions to deliver at least another USD 200 million of expense reductions.

“Reducing cost, increasing efficiencies and sharpening our customer focus across all our businesses will be particularly critical in this market environment,” Zurich’s Chief Financial Officer Dieter Wemmer said. “Thanks to our proven track record of TZW initiatives, we are confident in our ability to manage and control expenses.”

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