Zurich North America
Risk Management Council Meeting
WELCOME!
WELCOME!
New Member
Hector Mastrapa
Zurich
Guest Speakers
Thomas Huerlimann
Matt Jones
Chris Barnes
Guy Miller
Brian Winters
Simon Plumridge
Joe Tinetti
Jason Schupp
Francis Bouchard
Petra Riga
Tine Thorsen
Thomas Sepp (later today)
Michael Raney
Emanuel Baltis
© Zurich American Insurance Company
Marcos Lima (Odebrecht)
Christian Mendonca
(Schahin)
September 2011
2
Steve Allison – The Shaw Group
Dan Baldwin – Leggett & Platt
THANK
YOU!
Michael Bergines – eBay
Paula Gentile – MGM Resorts
International
Stacey Regan – GE
Scot Schwarting - Whirlpool
Why a Risk Management Council?
Mission
Provide an open forum for discussion and information
exchange between Zurich in North America and Risk
Managers
of
Explore current issues and trends affecting the management
risk
© Zurich American Insurance Company
Seek collaborative development of contemporary, tangible
solutions for Zurich in North America and its customers
September 2011
4
Why a Risk Management Council?
Objectives
Encourage constructive dialog between large corporations and Zurich.
Establish two-way communication between Zurich senior management
and industry representatives on economic, regulatory and social issues
which may affect our industry or our customers' industries.
Create an understanding of Zurich and of its customers' product and
service needs so as to align our respective operations to meet these
needs.
© Zurich American Insurance Company
Provide Risk Managers an opportunity to exchange information.
September 2011
5
Why a Risk Management Council?
Council structure and terms of service
Risk managers from large domestic and global companies
Three year terms
-Regular meeting attendance (attend 4 of the 6 meetings)
One third of memberships expire each year
© Zurich American Insurance Company
One third are new
September 2011
6
Council Members-Only Web Site – Accessible via your
ZVC
© Zurich American Insurance Company
Accessible through your
Zurich Virtual Concierge!
September 2011
7
Meeting Agenda
WEDS, Sept 14 - morning
Description
Speaker
8:30 am
Zurich update
M. Kerner
9:30 am
Current Regulatory & Legislative Developments
J. Schupp
10:15 am
BREAK
10:30 am
RMS 11.0 & Impact on Property Underwriting
Strategy
M. Jones
11:15 am
M&A: What should a Risk Manager look for?
Group discussion
facilitated by P. Horgan
12:00 pm
LUNCH (Salon Bleu Room)
© Zurich American Insurance Company
Time
September 2011
8
© Zurich American Insurance Company
Meeting Agenda
WEDS, Sept 14 - afternoon
Time
Description
12:45 pm
Risk Manager Only Session
1:55 pm
Stretch BREAK
2:00 pm
Economic & Market Outlook
G. Miller
2:45 pm
Product Recall Overview and Group Discussion
S. Plumridge
A. Simard
U. Uhlmann
3:30 pm
BREAK
3:45 pm
Brand Essence Workshop:
What the Zurich brand stands for
T. Thorsen
4:30 pm
Closing – Day 1
M. Kerner
5:30 pm
Evening Departure
September 2011
Speaker
9
© Zurich American Insurance Company
Meeting Agenda
THURS, Sept 15 - morning
Time
Description
7 – 7:45 am
Breakfast
8:00 am
Welcome: Day 2
G. Maguire
8:05 am
International: Group discussion
Part I: Latin America
Part II: MIA Demo
M. Raney
P. Riga
9:15 am
Open Forum / Q&A
Review feedback from RM only session
Facilitated by:
V.Butt
10:00 am
Closing
M. Kerner
10:15 am
Depart for Group Activity
September 2011
Speaker
10
Pocket Guide
Friday
IPZ session, including lunch
12:15 – 1:45
Palace Hotel, Ambassador Room
Steve Allison
Dan Baldwin
Howard Edelstein
Linda Elias
Paula Gentile
Leslie Lamb
Mike Lusk
Hector Mastrapa
Ken Murphy
Jeff Purdy
Pascale Samson
Claudia Temple
Marty Timpano
William Zachry
Zurich Update – General Insurance and
Global Corporate
Mike Kerner
CEO
Global Corporate in North America
How we measure ourselves
Customer Centricity
Top quartile customer satisfaction
Growth at or above the overall insurance
market across the cycle
AA-level financial strength
© Zurich American Insurance Company
We aspire to
become the best
global insurer as
measured by our
customers, our
shareholders and
our employees
Employer of Choice
High quality engagement scores
High quality retention rates
Shareholder Value
Top tier performance in each of our businesses
16% BOPaT ROE across the cycle
Paying a sustainable and attractive dividend
Top-quartile Total Shareholder Returns (TSR)
13
Zurich HelpPoint in action
With an unprecedented number & severity of catastrophes in
2011, Zurich has initiated more than 1,000 customer contacts
2011 is already highest loss year on record globally: earthquakes, tsunami,
floods and tornadoes are the primary causes of loss
$260B in economic losses globally
$55B in insured losses globally: more than 4x the 10-year average
© Zurich American Insurance Company
Risk Insights
Access to content from Harvard Business Review through Zurich Risk
Gateway
Launched Wall Street Journal microsite dedicated to Supply Chain Risk
Free access to Culture Wizard which contains cultural awareness courses
and culturally-focused country profiles on over 140 countries
14
© Zurich American Insurance Company
What customers are saying about Zurich
“Although I feel inundated by risk related articles and information
coming to me from so many different sources, the ZVC has been of
value to me given the diversity of content and the ability to pick and
choose what I want to see at any point in time.”
“Easy to use, lots of information available – my only constraint is
finding the time to actually use the information, but the automatic
emails to me are helpful in prioritizing.”
“Based on reasonable data without aggressive marketing.”
“I find it helpful and feel it is a good tool to provide to insured’s.”
“Unique in the industry and definitely a competitive advantage for
Zurich.”
“It contains timely information on emerging risk exposures.”
“It provides relevant topics such as regulatory issues that risk
managers much navigate through.”
15
Financial highlights
In USD millions
for the six months to June 30
2011
2010
Change
_________________________________________________________________________
________
Business operating profit (BOP)
-7%
Net income attributable to shareholders
2,132
1,965
2,286
1,642
20%
99.3%
98.0%
511
405
26%
7.2%
7.4%
-0.2pts
Shareholders equity
31,153
31.984
-3%
Return on common shareholders’ equity (ROE)
12.5%
11.5%
1.0pts
General Insurance combined ratio
-1.4pts
Global Life new business value (1)
Farmers Mgmt Services managed GEP margin (2)
(1) After tax; In 2011 new business figures have been determined including liquidity premium in the discount rate and, for greater consistency with
other
European Insurers,
a cost of
capital (after
applied to
residual
non-hedgeable risks of 4%.
The 201 comparatives
restated to reflect
Business
operating
profit
tax)
ROE
10.5%
12.4% have- been
1.8pts
changes. A refinement in methodology for calculating new business value for Corporate Risk business was introduced in 2011 contributing USD
84m to new business value, after tax in the first six months of 2011.
(2) Margin on gross earned premiums of the Farmers Exchanges. Zurich Financial Services Group has no ownership interest in the Farmers
Exchanges. Farmers Group, Inc., a wholly owned subsidiary of the Group, provides management services to the Farmers Exchanges and
receives fees for its services.
Business operating profit by segment
In USD millions
for the six months to June 30
2011
2010
Change
____________________________________________________________________________________
_
General Insurance
1,106
1,377
- 20%
Global Life
728
720
1%
Farmers (including Farmers Re)
729
845
- 14%
Other Operating Businesses
- 397
- 361
- 10%
_________________________________________________________________________
__
Total BOP Operating business segments
2,167
2,581
- 16%
Non-Core Businesses
- 34
- 295
88%
_________________________________________________________________________
__
Total BOP
2,132
2,286
- 7%
17
Top line development by segment
In USD millions
for the six months to June 30
2011
2010
Change
Change in LC (1)
_________________________________________________________________________________
_______
General Insurance
GWP and policy fees
18,876
17,940
5%
0%
_______________________________________________________________________
__
Global Life
GWP, policy fees and insurance
13,267
13,111
1.2%
-5 %
deposits
Annual Premium Equivalent (APE) (2) 1,899
1,716
11%
4%
_______________________________________________________________________
__
Farmers
(1) Local Currency
Farmers
management
fees Equivalent (APE)
1,375
1,399
-2 %
(2) Gross
new business
Annual Premium
2%
Farmers Re GWP
1,481
2,491
- 41%
- 41
18
2011 estimated economic and regulatory
solvency
Statutory solvency ratio / Group’s Solvency I (1)
© Zurich American Insurance Company
232%
Dec 31
2010 (2)
239%
Mar 31
2011
+9pts
Movements in
Q2-11
-6pts
Impact from
dividend
accrual (3)
242%
June 30
2011
(1) Solvency I requirements in accordance with the Swiss Insurance supervisory law.
(2) Finalized and as filled with the Swiss regulator; after 20010 dividend (slightly lower than estimate disclosed at Q4-10)
(3) The accrual for a future dividend, which is calculated as a proportional fraction of the 2010 dividend, does not represent and obligation
to pay a particular amount. The 2011 dividend to be proposed to be proposed to the AGM will be the decision of the Board in February
2012.
19
© Zurich American Insurance Company
Zurich Newz
Zurich’s Credit and Political Risk group voted ‘Best Private Insurer,’
‘Best Trade Insurer in Asia’ and ‘Best Trade Insurer in North
America’ by readers of Trade Finance magazine
St. Jude Children’s Research Hospital names Zurich ‘Employee
Giving Partner of the Year’
Zurich named as the top rated construction insurer by National
Underwriter’s 2011 ‘Risk Manager Choice Awards’
Zurich/Farmers healthcare programs win United Health Care
APEX award
Zurich named Best Overall Commercial Insurance Provider in
National Underwriter Risk Manager Choice Awards
Zurich’s Supply Chain Insurance and Assessment products garner
Business Insurance Innovation Award
Advisen names Zurich as one of the top New Product Pacesetters
for 2010
20
© Zurich American Insurance Company
Questions?
September 2011
21
Current Regulatory and Legislative
Developments
Jason Schupp
Group Compliance Officer
Agenda
• Solvency II – Implications for Risk Management, Compliance and Audit Functions
• Dodd-Frank – Status for Non-Bank Financial Companies
• Whistleblower Hot Lines – Spotlight from Dodd-Frank
© Zurich American Insurance Company
• Unexpected Regulatory Investigations – Focus on Preparation
8/13/2010
23
Solvency II: The Three Pillars
• The Solvency II (SII) Directive has been issued by the European Parliament in order to
harmonize the rules governing insurance and reinsurance undertakings throughout the European
Union
• The Directive is scheduled to come into force on January 1, 2013
• The Directive is often described as having a three pillar framework:
Pillar 2
Pillar 1
© Zurich American Insurance Company
Quantative
requirements
8/13/2010
Pillar 3
Governance
and risk
management
requirements,
supervisory
review
Disclosure and
transparency
24
SII: The “System of Governance”
The system of governance:
• Includes the Risk Management,
Compliance, Internal Audit and
Actuarial functions
• Proportional to the nature, scale and
complexity of the undertaking
© Zurich American Insurance Company
• Functions connected, yet
independent
8/13/2010
25
Expectations of “System of Governance”
Functions
How the functions operate:
• Unrestricted access and appropriate resources
• Free from influences on objectivity
• Prompt reporting of problems to top management
© Zurich American Insurance Company
• Transparency of roles and processes
8/13/2010
26
Charge of the “System of Governance”
Functions
• Risk Management
- Monitor the risk management system
- Assist management in the effective operation of the risk management system
- Maintain an enterprise-wide view on the risk profile
- Make detailed reports on risk exposures and advise management on such
- Identify and assess emerging risks
© Zurich American Insurance Company
• Internal Audit
- Establish and implement an audit plan taking into account all activities of the enterprise
- Take a risk-based approach in deciding priorities
- Report and make recommendations of action in writing (including responsibility and time
frame)
• Compliance function
- Establish written compliance polices and a compliance plan
- Ensure compliance training and staff awareness
- Advise on compliance aspects of new products, services and markets
- Clearly set forth responsibilities, competencies and reporting duties of the function
- Assess the adequacy of measures to prevent non-compliance
8/13/2010
27
“Fit and Proper” Standard
Not just how, but who:
•
SII sets out “fit and proper” requirements
- Professional qualifications
- Experience
- Integrity
- Financial soundness
Leadership of system of governance functions
•
Notification of supervisory authority
© Zurich American Insurance Company
•
8/13/2010
28
Agenda
• Solvency II – Implications for Risk Management, Compliance and Audit functions
• Dodd-Frank – Status for Non-Bank Financial Companies
• Whistleblower Hot Lines – Spotlight from Dodd-Frank
© Zurich American Insurance Company
• Unexpected Regulatory Investigations – Focus on Preparation
8/13/2010
29
Non-Bank Financial Institutions
•
The Financial Stability Oversight Council (FSOC) met on July 18th but did not discuss
systemic risk criteria
•
On July 27, Roy Woodall selected to be the voting insurance expert on the FSOC
-
•
Woodall has attended no FSOC meetings
Woodall must be confirmed by the U.S. Senate
On August 10, Treasury confirmed that the FSOC will re-propose — with “greater detail on
the process and framework”— the principles it will use in designating non-bank financial
companies as systemically important
Treasury indicated there will be a 60 day period for public comments
Designations of nonbanks may not begin until November
© Zurich American Insurance Company
-
8/13/2010
30
Comparison of the Bank and P&C Industry Balance Sheets
Banking
Industry Profile 1
Assets
Cash & Investments
Loans
Total Earning / Invested Assets
Premium / Reinsurance Receivables
Other Assets and Receivables
Total Assets
Liabilities & Capital
Loss reserves
Unearned premium reserves
Deposits
Other borrowings - short term
Total operating liabilities
Accounts payable and other liabilities
Capital & surplus
Total Liabilities & Capital
25%
65%
90%
P&C Insurance
Industry Profile 2
84%
10%
84%
12%
4%
100%
100%
38%
14%
73%
14%
87%
2%
11%
1%
53%
15%
32%
100%
100%
Where are the most
assets?
Banks: Loans
P&C: Investment securities
Where are the most liabilities?
Banks: Demand and time deposit
P&C: Incurred loss reserves
What is the leverage?
Banks are typically significantly
more leveraged than P&C
companies
© Zurich American Insurance Company
1
- Source: Federal Financial Institutions Examination Council - Uniform Bank Performance
Report for all commercial banks over $3B total assets (as of 12/31/09)
2
- Source: SNL Interactive - P&C Industry Profile - P&C Industry Balance Sheet (on a statutory
accounting basis) - (as of 9/30/09)
8/13/2010
31
Agenda
• Solvency II – Implications for Risk Management, Compliance and Audit functions
• Dodd-Frank – Status for Non-Bank Financial Companies
• Whistleblower Hot Lines – Spotlight from Dodd-Frank
© Zurich American Insurance Company
• Unexpected Regulatory Investigations – Focus on Preparation
8/13/2010
32
Whistleblower Hot Lines – Spotlight from DoddFrank
•
-
voluntarily provide the U.S. Securities and Exchange Commission (“SEC”)
-
original information regarding a violation of the “securities laws”
-
leading to a successful enforcement action by the SEC or other agencies
Certain categories of persons (incl. auditors, lawyers, compliance personnel) or
information (e.g. obtained from an excluded person) are generally excluded from
eligibility for an award
© Zurich American Insurance Company
•
SEC is required to pay between 10% and 30% of any recovery over $1,000,000 to
persons who:
8/13/2010
33
Whistleblower Hot Lines – Spotlight from
Dodd-Frank
•
Whistleblower is incentivized to utilize the company’s internal reporting system first
(increasing potential award)
•
Company must protect whistleblowers from retaliation if reported in good faith
•
A robust and effective compliance program including a well-known, confidential and
functioning internal whistleblowing procedure is key:
encourages potential whistleblowers to utilize the internal reporting mechanisms
-
allows timely internal assessment
-
enables company to take quick action
© Zurich American Insurance Company
-
8/13/2010
34
Agenda
• Solvency II – Implications for Risk Management, Compliance and Audit functions
• Dodd-Frank – Status for Non-Bank Financial Companies
• Whistleblower Hot Lines – Spotlight from Dodd-Frank
© Zurich American Insurance Company
• Unexpected Regulatory Investigations – Focus on Preparation
8/13/2010
35
Unexpected Regulatory Investigations
• Investigation of criminal or quasi-criminal conduct (e.g., insider dealing, anti-competitive
behavior, bribery or corruption, tax and other fraud)
• Intention to:
- Prevent the destruction of evidence
- Encourage cooperation
- Send an obvious signal of the seriousness of the matter being investigated
• Execution at office, home or travel
• Unprepared executives and facilities present a risk of increased financial and reputational
damage
© Zurich American Insurance Company
 Basic steps for preparedness can make a difficult process more orderly and reduce the risks
for both the company and individuals
8/13/2010
36
Preparation
• Establish, train and test written procedures for an initial response, such as- Expectations of front desk personnel, Legal and Compliance
- Physical movement of and working areas for investigators
- Awareness of local investigation procedures and rights
- Arrangement of logistical support for investigators
- Periodic confirmation of awareness
- Simulation testing
© Zurich American Insurance Company
• Executive Management Preparation
- Basic rules of conduct
- Instruction cards and contact information for use at home or travel
- Considerations for home or travel (e.g., travel with limited paper files)
- Periodic in-person refresher with the aid of scenarios and mock questions
8/13/2010
37
© Zurich American Insurance Company
BREAK
September 2011
38
RMS 11 and the impact on property
underwriting strategy
Dr Matthew Jones
Head of Catastrophe Management
Global Underwriting
Zurich General Insurance
Outline
Cat Management at Zurich
The “Zurich View”
RMS 11 US Hurricane Model
Impacts – including on property UW strategy
© Zurich American Insurance Company
Cat Customer Risk Insight Services
September 2011
40
Outline
Cat Management at Zurich
The “Zurich View”
RMS 11 US Hurricane Model
Impacts – including on property UW strategy
© Zurich American Insurance Company
Cat Customer Risk Insight Services
September 2011
41
We have strong governance and controls around
Catastrophe Management, executed by a global team
Board Risk Committee
Zurich Risk Policy
Decides upon
mitigating actions
if risk policy limits
are threatened
Global Underwriting Committee
Global Catastrophe Management
Matthew Jones
Group Reinsurance Committee
Provides
governance and
sign-off of our
“Zurich View” of
Catastrophe Risk
Group Re Catastrophe Perils
Our Vision
© Zurich American Insurance Company
The Global Cat Management function aspires
to deliver thought leadership around Cat
knowledge, models and services on a globally
consistent and timely basis across all lines
of business to provide customer centricity
and facilitate profitable growth
September 2011
42
Outline
Cat Management at Zurich
The “Zurich View”
RMS 11 US Hurricane Model
Impacts – including on property UW strategy
© Zurich American Insurance Company
Cat Customer Risk Insight Services
September 2011
43
As model “skeptics”, forming our own “Zurich View” is
a key part of what we do
Access to model
developers
Expert modelers
Multiple models
Hazard
“Zurich View”
of Cat Risk
Latest research
Vulnerability
External experts
Claims experience
Non modeled items
Risk Engineering
Reinsurer expertise
Data quality
© Zurich American Insurance Company
Targeted
consultancy
September 2011
Broker expertise
44
© Zurich American Insurance Company
A motivational factor to form an accurate Zurich
View?
September 2011
45
Outline
Cat Management at Zurich
The “Zurich View”
RMS 11 US Hurricane Model
Impacts – including on our property UW strategy
© Zurich American Insurance Company
Cat Customer Risk Insight Services
September 2011
46
The revised RMS US Hurricane model includes more up
to date science and data, but leaves us with some
issues
Completely new model (V11) for the Atlantic Hurricane peril region released by RMS at the end of
February 2011
Previous version of the model was originally produced in 2003 with an update in 2006
RMS invested circa 50 people years into the development of the v11 US Hurricane model
Key changes to:
Inland filling – hurricanes can penetrate further in land
Storm surge – new detailed model replaces broad assumptions
Vulnerability – learnings from IKE have increased vulnerability in some areas
Mid term risk – more aggressive view of the mid term risk
RMS have two “flavors” of model
Mid term rates model – RMS’s recommended model reflects increased activity
Long term rates model – reflects the long term (since 1900) average activity
© Zurich American Insurance Company
Zurich has committed a considerable amount of resource and also engaged external parties in the
review of the model. In addition, comparisons to the current AIR model have been made.
The pure results for the new model increase significantly compared to the old version
September 2011
47
The model change is driven by many factors
Zurich Portfolio
Florida wind
© Zurich American Insurance Company
Inland
filling Florida
Landfall rate
&
vulnerability
– South
Coast Florida
Increased
differential Mid
term over Long
term rates –
South Coast
Florida
September 2011
Texas & Gulf wind
Reduced
benefit of
multiple
secondary
modifiers
Long term
landfall rates
and vulnerability
– South Coast
Florida
Storm surge
Combination of increased
inland filling and increased
vulnerability - Texas and Gulf
Inland filling
– Texas &
Gulf
Key drivers of change ->
many different changing
pieces means complex work
to assess revised view of risk
Increased
vulnerability
– Texas &
Gulf
48
48
A lot of research and resource went into our revised
Zurich View of US Hurricane risk
Hazard
Model documentation (1000s pages)
Scientific literature / data
Detailed interviews with model developers
External experts -> reinsurers, brokers, world class scientists (eg Greg
Holland)
Vulnerability
Model documentation
Actual versus modeled claims analysis
© Zurich American Insurance Company
Non modeled items, eg:
Non modeled lines of business
Allocated loss adjustment expenses
September 2011
49
Wind Hazard
Long Term versus Mid Term rates
RMS argues that we are currently in a phase of elevated Hurricane activity and that currently, warm sea
surface temperatures (SSTs) help fuel the above-average development / formation of Hurricanes –
which we agree with. However the impact on landfalling frequency is less clear.
One way of describing warmer and colder cycles in Atlantic SSTs is the Atlantic Meridional Oscillation
(AMO).
Analysis of HURDAT data (1900 – 2005) suggests minimal correlation only between positive or
negative AMO cycles, and the number of US landfalling Hurricanes. Some of the costliest Hurricanes
on record occurred during ‘cold’ (negative) AMO cycles.
© Zurich American Insurance Company
AIR does not increase landfall frequency as much as RMS in their warm SST event set.
September 2011
50
Wind Hazard
Long Term versus Mid Term rates
The North Atlantic hurricane database, or HURDAT1, is the database for all tropical cyclones in the Atlantic
Ocean, Gulf of Mexico and Caribbean Sea.
HURDAT suggests no trend in frequency of US landfalling Hurricanes between 1900 and 2010. The last
five years (blue) were below average in terms of US landfalling frequency, while the past ten years (red)
were in line with the 1900 – 2010 climatology.
The last decade (2000 – 2010) saw US landfalling Hurricanes in line with the RMS 2011 Long Term Rates.
--- RMS Mid Term Rates
© Zurich American Insurance Company
--- RMS Long Term Rates
1
http://www.aoml.noaa.gov/hrd/hurdat/ushurrlist.htm
September 2011
51
Our new Zurich View of US Hurricane risk is an
increase on our prior view, but not at the top of the
range
The latest RMS and AIR models (both mid term and long term) all give credible views of the current US HU risk
Selecting the RMS mid term view would be to pick a view at the very top of this range
G ro s s Z N A L o s s e s
There is a range of views below, there is uncertainty in the relationship between climate states and landfalling
hurricanes, there are concerns over some of the frequency changes in the RMS v11 mid term view
RMS v 11 mid term
RMS v 11 long term
A IR v 12 mid term
A IR v 12 long term
© Zurich American Insurance Company
Range of credible 250y levels
50 Yr
September 2011
100 Yr
250 Yr
500 Yr
52
Outline
Cat Management at Zurich
The “Zurich View”
RMS 11 US Hurricane Model
Impacts – including on property UW strategy
© Zurich American Insurance Company
Cat Customer Risk Insight Services
September 2011
53
Impact of RMS 11 - Rating agencies
“We have seen relatively little
cat bond issuance in 2011…
most issuers are still
assessing the impact of the
new model on exposure,
attachment points and cat
bond pricing” S&P
So far no downward rating of
(re)insurers as a result of the
new model release … however
Cat bonds have been
downgraded
“There will be increased upwards
pressure on property catastrophe
reinsurance rates as both
reinsurers and primary insurers
gradually implement RMS version
11.0 into their internal analysis
throughout 2011 and into the
January 2012 renewal period”
Fitch
© Zurich American Insurance Company
Rating agencies paying
increased attention to ERM
“We understand that it will take time
for a (re)insurer to fully understand
the new model’s effect on its
exposure, and will allow for a
reasonable period of assessment
before expecting RMS v11 to be fully
adopted” S&P
September 2011
“Pricing in U.S. [reinsurance]
property lines rose modestly as a
result of the release of updated
versions of the vendor catastrophe
models” S&P
“If we are not comfortable with an
insurer’s understanding or
implementation of a model.. we will
reflect this in the rating” S&P
54
Impact of RMS 11 - Reinsurance & Primary
Markets
US Property Cat Reinsurance
Prediction in April of flat to down 5% June / July renewals (source: AonBenfield)
Price changes, July US Cat renewals:
– Fitch
– AonBenfield:
– Guy Carpenter:
5% to 15%
0% to -5%
5% to 10%
Unclear whether reinsurance increases are driven by new model release, or poor 2011H1
profitability – probably both
Primary Market
© Zurich American Insurance Company
We do now see some evidence of increased rates, or reduced capacity, for US wind exposed
business
September 2011
55
Impact of RMS 11 - Zurich
Zurich’s strategy is to only underwrite risks that are “known and understood” and that
contribute sufficient profitability to deliver our overall target returns
High data quality requirements
Means no fundamental shift in US Cat property strategy
Zurich View of Cat risk is used in all areas, including:
Regulatory / rating agency returns, reinsurance purchasing, risk based capital
calculation, risk appetite assessment, primary pricing
Zurich View has mitigated the impact of the model change in all these areas
However, we expect that increases in our view of risk for US hurricane, and in the
availability / price of reinsurance will lead to price increases for US hurricane exposed
business
© Zurich American Insurance Company
Our strategy is to support our customers with appropriate limits for Cat exposures.
We adopt a differentiated approach –> every account is assessed on its own merits
We can help you understand this risk better…
September 2011
56
Outline
Cat Management at Zurich
The “Zurich View”
RMS 11 US Hurricane Model
Impacts – including on property UW strategy
© Zurich American Insurance Company
Customer Cat Risk Insight Service
September 2011
57
Risk Engineering advice and proactive customer
contact by Claims can help you prepare for the
worst
Expert Risk Engineers can you provide you with advice on risk reduction measures
Prior to a Hurricane hitting, our claims teams aim to contact customers and brokers
with potentially impacted locations in order to warn of the impending event, and
provide advice on how best to prepare
© Zurich American Insurance Company
Documents on how to prepare for a Cat event are available to customers and agents
on our internet site
September 2011
58
© Zurich American Insurance Company
Zurich’s Cat Risk Insight solution can help you
manage risk in your business
September 2011
59
Typical Catastrophe Risk Insight process
Customer mandate
Contact via relationship
managers, underwriters
or risk engineers
Data collection/
review
Exposure data collection
in collaboration with
Underwriting and Risk
Engineering
Reporting
Accumulation potential
calculations
Study report and toolbox
including:
Event / scenario
analysis
Exposure maps in
Google Earth format
Review of exposure data
for the selected sites and
data plausibility checks
Deterministic exposure
calculations
Hazard maps
Setup of the dataset for
modeling where
applicable
Probabilistic loss
assessment by return
period
Scope & site selection
Modeled results (Zurich
View) and interpretation
Webinars and on-site
presentations
© Zurich American Insurance Company
Peril regions hazard
analysis including
historical events
Exposure analysis/
modeling
September 2011
60
© Zurich American Insurance Company
Questions?
September 2011
61
M&A:
What should a Risk Manager look for?
Facilitated by:
Paul Horgan
LUNCH
12:45 – 1:55 pm
© Zurich American Insurance Company
(Salon Bleu)
Risk Manager ONLY session
September 2011
63
Agenda
New Collateral Buy-Down Product
1:05
Customer Communication
1:20
Claims Communication
1:35
Other
1:55
Stretch Break
2:00
General Session begins
© Zurich American Insurance Company
RM only
Session
12:45
September 2011
64
© Zurich American Insurance Company
Stretch
BREAK
September 2011
65
Economic & Market Outlook
Guy Miller
Managing Director, Chief Market Strategist,
Head of Macroeconomics
Zurich
Global Outlook
Developed economies are running close to stall speed, with further
support required
Emerging markets will continue to pickup some of the slack, but
their cycle is maturing
© Zurich American Insurance Company
Investment returns will be at the mercy of policy makers
While equity markets appear oversold, risks are high and caution is
warranted
September 2011
123291A01 (Market update)
67
Banking crises take considerable time to be overcome
History suggests the investment landscape will remain challenging
Returns following financial crises tend to be subdued for years
180
180
Nikkei 1989
160
160
S&P500 today
Sweden OMX 1991
140
140
S&P500 1929
120
120
100
100
80
80
60
60
40
40
20
20
© Zurich American Insurance Company
Source: Bloomberg
0
Mar 07
September 2011
0
Sep 07
Apr 08
Oct 08
May 09
Nov 09
Jun 10
Dec 10
Jul 11
Feb 12
Aug 12
Mar 13
Sep 13
68
A private sector debt crisis has become a public sector crisis
Consumer debt is starting to turn, but public sector debt is still rising
US debt levels are unsustainable
200%
US Debt to GDP Source: Federal Reserve, Bureau of Economic
Analysis
(%):
180%
Goverment
Households
160%
© Zurich American Insurance Company
Tough austerity measures are being implemented in the
UK
200%
180%
140%
120%
120%
100%
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
0%
September 2011
Goverment
160%
140%
1980
Source: Eurostat
UK Debt to GDP (%):
1990
2000
2010
Households
1990
2000
2010
69
Eurozone is at breaking point, but problems are surmountable
The debt burden is high, but the cost of a break-up would dwarf it
In aggregate, Eurozone debt levels are manageable
130%
Source: IMF World Economic
Outlook
In a break-up, the banking sector would risk
collapse
2500
Banking Sector Exposure to Peripheral Public/Private Debt (€bn):
120%
2000
110%
Source: BIS, ECB, Barclays
Capital
100%
1500
Greece
Portugal
Ireland
Italy
Spain
18% of
Eurozone GDP
90%
80%
1000
21% of
German GDP
70%
60%
31% of
French GDP
500
© Zurich American Insurance Company
50%
0
40%
USA
September 2011
Eurozone
Italy
Portugal Spain Germany
German
French
European ex UK
70
Eurozone growth is stalling, with even core economies weak
Deleveraging and heightened sovereign debt concerns are impacting growth
Industrial activity has not reached previous levels...
120
Industrial Production (index):
115
Source: National Sources,
Datastream
France
Germany
Italy
Spain
Eurozone
110
105
….yet already the recovery is running out of steam
3.0%
Source: Eurostat
Real GDP (% QoQ):
2.5%
2.0%
Germany
France
Italy
Spain
Eurozone
100
95
1.5%
90
85
1.0%
80
0.5%
© Zurich American Insurance Company
75
70
Jan May Sep Jan May Sep Jan May Sep Jan May Sep
08 08 08 09 09 09 10 10 10 11 11 11
September 2011
0.0%
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
71
The world is bifurcated, with disparate economic cycles
Rates are on hold indefinitely in developed regions, while close to peaking in
emerging
A ‘typical’ cycle is playing out in Asia
Developed market rates are effectively zero
7%
10%
Source: Central Banks, Datastream
USA
Eurozone
UK
Switzerland
Japan
6%
5%
6%
China (LHS)
India (LHS)
Taiwan (RHS)
Korea (RHS)
9%
5%
8%
4%
7%
3%
6%
2%
5%
1%
4%
3%
2%
© Zurich American Insurance Company
1%
Source: Central Banks, Datastream
0%
Sep 06
September 2011
4%
Sep 07
Sep 08
Sep 09
Sep 10
Sep 11
Sep 06
0%
Sep 07
Sep 08
Sep 09
Sep 10
Sep 11
72
The US recovery has been sub par, leading to disillusionment
The excesses of the boom times are still being unwound, stifling the recovery
Not a ‘typical’ recovery for the US
160
US Real GDP Level (rebased to 100 at start of
recession):
December 2007
March 2001
July 1990
July 1980
© Zurich American Insurance Company
150
Consumption, the largest part of GDP, has been
poor
160
October 1982
140
130
130
120
120
110
110
100
100
Source: Bureau of Economic
Analysis
0M +6M +12M +18M +24M +30M +36M +42M +48M +54M
September 2011
December 2007
July 1990
July 1980
150
140
90
US Nominal Consumer Spending (rebased to 100 at
start of recession):
March 2001
October 1982
Source: Bureau of Economic
Analysis
90
0M
+6M +12M +18M +24M +30M +36M +42M +48M +54M
73
Means of stimulating the economy have become ineffective
Low rates are no longer a growth catalyst, while the transmission mechanism is
broken
Consumers want less debt, despite low rates
20%
Savings rate
18%
Fed funds
Liquidity is failing to find its way into the real
economy
10
3,500
9
3,000
Source: Federal Reserve
16%
8
14%
12%
2,500
7
2,000
10%
6
8%
1,500
5
6%
© Zurich American Insurance Company
2%
0%
1,000
4
4%
Source: Bureau of Economic Analysis,
Reuters
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep
81 84 87 90 93 96 99 02 05 08 11
September 2011
3
Money Multiplier (M2/M0, LHS)
500
Fed Total Assets (bn$, RHS)
2
Sep 06
0
Sep 07
Sep 08
Sep 09
Sep 10
Sep 11
74
Growth will persist, but the pace will disappoint
The economy is expanding, although housing and jobs are depressing sentiment
Still all about jobs…
Activity levels are close to stall speed
80
Expansion
Source: Institute for Supply
Management
12%
70
10%
60
8%
Source: Bureau of Labor Statistics, U. of Michigan Survey Research
Center
120
110
100
90
6%
50
80
Contraction
4%
40
70
ISM Non Manufacturing
ISM Non Manufacturing New Orders
ISM Manufacturing
ISM Manufacturing New Orders
© Zurich American Insurance Company
30
20
Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep
07 08 08 08 09 09 09 10 10 10 11 11 11
September 2011
2%
Unemployment Rate (LHS)
Consumer Confidence (RHS)
0%
60
50
Sep Jun Mar Dec Sep Jun Mar Dec Sep Jun Mar Dec Sep
90 92 94 95 97 99 01 02 04 06 08 09 11
75
Asia remains the growth engine, despite slowing to trend
Low growth in developed markets is being offset to some extent by emerging
economies
Developed market share of global growth is in
decline
Source: IMF World Economic
Outlook
% Contribution:
120%
Emerging and Developing Economies
Advanced Economies
(Negative Global Growth)
Activity levels in Asia have soared
20
18
Forecast
60
Indonesia Exports (US$ bn, LHS)
South Korea Exports (US$ bn, RHS)
China Electricity Output (10bn Kwh, RHS)
16
100%
50
14
80%
40
12
10
60%
30
8
40%
6
4
20%
© Zurich American Insurance Company
20
Source: Korea Ministry of Knowledge Economy, Badan Pusat
Statistik Indonesia, China Economic Information Network, Bloomberg
2
0%
2002
September 2011
2004
2006
2008
2010
2012
2014
2016
10
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep
00 01 02 03 04 05 06 07 08 09 10 11
76
In spite of the macro environment, US profits have been stellar
Cost cutting and minimal investment have supported earnings, but is not
sustainable
Record profits for US companies
2,000
The
crisis was
a mere
hiccup
for earnings
In contrast,
the UK
and US
have plentiful
liquidity
90
Corporate Profits (bn$, sa)
80
1,800
70
1,600
US Earnings
Cyclical adj. Earnings
Cyclical adj. P/E (RHS)
P/E (RHS)
60
1,400
50
1,200
40
30
1,000
20
© Zurich American Insurance Company
800
10
Source: Bureau of Economic
Analysis
600
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep
01 02 03 04 05 06 07 08 09 10 11
September 2011
Source: MSCI, ZFS
0
105
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep
71 75 79 83 87 91 95 99 03 07 11
77
Earnings expectations are now being slashed, hitting valuations
Equities remain at risk, but rallies from oversold conditions are likely
Earnings can’t buck the macro trend forever
Investors have lost faith in stocks
1600
60%
100%
% Shares Above 10 Week MAV (LHS)
S&P 500 Index (RHS)
Overbought
40%
1500
1400
80%
20%
1300
1200
0%
60%
1100
-20%
1000
40%
900
-40%
Citigroup Earnings Revisions
Balance:
-60%
Oversold
© Zurich American Insurance Company
Source: Citigroup
-80%
Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep
09 09 10 10 10 10 10 10 11 11 11 11 11
September 2011
800
20%
US
Eurozone
700
Source: Datastream
600
0%
Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep
08 08 09 09 09 09 10 10 10 10 11 11 11
78
Political intransigence is hurting on both sides of the Atlantic
Safe haven assets command a hefty premium, but this could persist for some time
yet
Real yields turn negative as capital protection is
sought
3.5%
Bonds are only a bit stretched, given the macro
backdrop
5.0%
3.0%
4.5%
2.5%
4.0%
2.0%
3.5%
1.5%
3.0%
1.0%
2.5%
0.5%
2.0%
0.0%
1.5%
© Zurich American Insurance Company
-0.5%
-1.0%
Sep 06
September 2011
US 10yr
UK 10yr
Germany 10yr
Sep 07
Fair Value Model (%)
10yr Treasury Yield (%)
Source: Bloomberg
Sep 08
Sep 09
Sep 10
Sep 11
Source: Bloomberg, ZFS
1.0%
Jan
08
May
08
Oct
08
Mar Aug
09 09
Jan
10
Jun
10
Nov
10
Apr
11
Sep
11
79
Zurich is well positioned for these challenges
Zurich has weathered the financial storm well and has improved its competitive position
A disciplined approach of managing investments relative to liabilities is a cornerstone of this success
Focus is placed on understanding the risks that are taken and in mitigating unrewarded market risks
A strong balance sheet and a strategy that preserves capital will enable Zurich to meet customer needs
in stressful times
© Zurich American Insurance Company
34 consecutive quarters of profitability have put Zurich in a strong position to meet the challenges ahead
September 2011
80
© Zurich American Insurance Company
Unverified statistic of recall owl website
September 2011
82
Agenda
Experiences of a Risk Manager – Alain Simard, Saputo
Risk Transfer and Service Options – Simon Plumridge, Zurich
© Zurich American Insurance Company
Discussion / Q & A
September 2011
83
Zurich’s Risk Management Council Meeting
Product Recall Risk
© Zurich American Insurance Company
Presented on September 14, 2011
September 2011
84
Risk Management Circle
Continuous
Improvement
Company
Expectations
Executive,
Management,
Employee Buy-in
Annual
Review
Communication/
Training
Measure
MANAGEMENT OF RISK
- OPERATIONAL -
Risk
Assessment
Capital
Projects
Audits
© Zurich American Insurance Company
Corrective
Action
Procedures
Unusual
Occurrence
Investigation
September 2011
Planning
85
Product recall loss (example)
Introduction
Company x owns and operates many dairy plants in the United States. Company x
manufactures and distributes almost all dairy products from bottled milk to cheese
and also manufactures and distributes by-products derived from milk.
Company x, among all its manufacturing facilities, owns a small factory that
manufactures skim milk powder. Such plant represents a low amount of milk intake
and does not generate a significant amount of finished goods. Therefore, and
especially since from a FDA regulatory compliance stand point and also from a QC
stand point the plant represents no « recommendation » or no « none compliancy
issues », the powdered milk plant is not on company x risk management’s radar.
Powdered products, being a dry product, have a relatively long shelf life and
© Zurich American Insurance Company
therefore inventory build-up both at the plant and at the plant’s customers is not
uncommon.
September 2011
86
Product recall loss (example)
Incident
FDA representative calls the plant and warns them about a dairy farmer who
reported an error that was made by its animal feed supplier.
The animal feed supplier, by mistake, shipped many truck loads to the dairy farmer
of feed destined to cattles in the meat industry and not in the milk industry.
After testing randomly some bags of skim milk powder, it was determined that more
than 70% of the tested products had traces of a drug not approved by FDA in the dairy
industry.
FDA ordered for 100% of the finished products within the plant’s warehouse to be
© Zurich American Insurance Company
put on hard hold, for all the milk in the plant’s silos to be dumped and to proceed
with a public recall for all of this plant’s production including by-products that made
it to distribution for the last two months.
September 2011
87
Product recall loss (example)
The spider web !
1.In this example, we are looking at the dairy processor (company x). But don’t forget
that our spider web started at the dairy farm and impacted all of the farmer’s
customers. In our example, company x is only one of them.
2.The powdered milk that made it to distribution went to:
 3 plants owned and operated by company x that manufacture cheese. In those
3 plants, skim milk powder is used as an ingredient.
 One of those 3 plants used its own whey and the whey from 5 other cheese
facilities to separate the lactose and the protein from the whey and to
transform it into lactose and protein powder.
 The protein powder was then sold as an ingredient to companies making food
supplements.
© Zurich American Insurance Company
 The lactose powder was sold also as an ingredient to companies making,
among other things, baby food !
 Other cheese plants not owned by company x also received skim milk powder
subject to the recall.
September 2011
88
Product recall loss (example)
The spider web !
3.
The plant in question made skim milk powder. So they had to skim the milk
before drying the milk. Where did the fat from the skimming go ?
 to a butter plant owned by company x.
 the butter went to retail market and also as an ingredient to snack, cake and
cookie manufacturers.
 The butter milk derived from the butter making process went to a chocolate
milk plant owned and operated by company x as an ingredient.
© Zurich American Insurance Company
* Do you now understand better the notion of spider web ?
September 2011
89
Risk Transfer and claims service
options
Product safety & recall insurance
Simon Plumridge, Global Head of Product
Recall
Zurich General Insurance
PR1(V1)Feb/05/10GC/ZCA
Product safety headlines
PR3(V1)Feb/05/10GC/ZCA
1 million pushchairs recalled after
12 children have fingers amputated.
Peanut products
cause more recalls.
November 2009
January 2007
Toy manufacturing giant
recalls 18 million toys worldwide
after paint found to contain lead.
Chocolate bars
recalled from stores
across UK and Ireland.
August 2007
September 2008
Understanding the impact to your business
PR9(V1)Feb/05/10GC/ZCA
Coverage that offers protection for
your business and peace of mind for you
PR13(V1)Feb/05/10GC/ZCA
Coverage that offers protection for
your business and peace of mind for you
Product
Recall costs
Rehabilitation
expenses
Third party
recall costs
Extortion costs
Replacement costs
Consultant &
advisory costs
Business interruption
Defence costs
PR14(V1)Feb/05/10GC/ZCA
Crisis consultancy post loss services
Response
Brand damage
limitation
Brand rehabilitation
© Zurich American Insurance Company
Communication
support
September 2011
PR15(V1)Feb/05/10GC/ZCA
95
© Zurich American Insurance Company
Discussion
September 2011
96
© Zurich American Insurance Company
BREAK
September 2011
97
Brand Essence Workshop:
What the Zurich Brand stands for
Tine Thorsen
Head of Marketing
Global Corporate
Closing – Day 1
Mike Kerner
Chief Executive Officer
Global Corporate, North America
This Evening – Mt. Pilatus
5:30
6:30
7:00
9:30
10:10
10:40
Depart Palace Hotel via Coach (drinks available)
Cogwheel train up to the Top (drinks available)
Cocktails/Dinner FROM the TOP
Board cogwheel train
Return to Palace by coach
Arrive Palace Hotel
Business Casual –
bring jacket / sweater
Zurich North America
Risk Management Council Meeting
THURSDAY
Lucerne, Switzerland
Meeting Agenda
THURS, Sept 15 - morning
Description
Speaker
8:00 am
Welcome: Day 2
G. Maguire
8:05 am
International: Group discussion
Part I: Latin America
Part II: MIA Demo
M. Raney
P. Riga
9:15 am
Open Forum / Q&A
Review feedback from RM only session
Facilitated by:
V.Butt
10:00 am
Closing
M. Kerner
10:15 am
Depart for Group Activity
© Zurich American Insurance Company
Time
September 2011
102
International – Part I
Latin America
Facilitated by:
Michael Raney
Chief Executive Officer
Global Corporate, Latin America
International – Part II
Multinational Insurance Application
Petra Riga
Head of International Program Sales
Global Corporate
Link:
http://educ-mia.zurich.com/disclaimer.aspx
Zurich’s Multinational
Insurance Application
Navigating the complex regulatory world
Complexities of Cross Border Business
Numerous Variations & Considerations
240+ countries and
kingdoms
Sometimes multiple
provinces per country
Licensing requirements
Premium tax requirements
Varying definitions for
Non-admitted business
Cross-border business
Lines of Business
Attachment points for
jurisdiction, regulation
or tax
Conflicts of laws &
regulations
Varying business practices
International Regulatory
Framework and Assistance
Business promise
to the Customer
Reputation
International Tax
Authorities’
Framework and Assistance
Interrelation: Prohibited
cross-border business
and tax
E&O / Liability
Exposure
106
TEM24(V1)Oct/28/09GC/ZCA
What are the Risks of Non-Compliance
Argentina imposes fines
107
What are the Risks of Non-Compliance
Switzerland & FOPI step in
108
Multinational Insurance Proposition
A Key Component of Zurich’s Offering
Adherence to local
regulatory laws
Compliance with
non-admitted insurer
tax requirements
Local insurance
licenses where
required
Mandatory cover
where required
These principles apply
to all direct insurance:
• Primary
• DIC/DIL excess
• Co-insurance
Additional insurance
services include:
• Risk engineering
• Premium invoicing & payment
• Premium reimbursement
• Loss adjustment
• Claim payment
109
Multinational Insurance Application
Turning Complexity into Clarity
Insurance regulatory
information
Insurers foreign
premium tax
41 Lines of Business
for more than 180
countries
Updated regularly by
130 independent law
firms
Zurich’s Multinational Insurance Application (MIA) is the most comprehensive
database available in the insurance market for managing the complex
regulatory and foreign premium tax requirements.
Peter A. den Dekker, President of FERMA (2009 – 2011)
110
MIA “live demonstration”
111
MIA - Tax reporting
Tax record
created

Tax records
will be
generated
Tax record triggered

On the second business
day of the month the
previous month will be
closed of and the Tax
records triggered

This will set those records
automatically to completed
and make them available
for reporting

Before triggering the cash
received date is
populated where
applicable
Tax paid to
Authorities
Reports generated


Reports are generated by
the Tax Responsible in
each Producing country
and based on these Taxes
will be paid to the
respective Tax
Representatives or Tax
Authorities
Tax Representatives
generate reports to
populate the respective
country’s return and pay
the respective funds to
the Authorities

The Tax Responsible
pays based on the
generated reports the
amounts due to the Tax
Representative or Tax
Authority in the respective
country.

The Tax Representatives
pays based on the
generated reports the
respective funds to the
Authorities
112
MIA Customer report example
113
MIA Monthly tax rep report example
114
Thank you !
Facilitated by:
OPEN
FORUM
Valerie Butt
Agenda
New Collateral Buy-Down Product
Customer Communication
Claims Communication
© Zurich American Insurance Company
Other
September 2011
116
Closing
Mike Kerner
Chief Executive Officer
Global Corporate, North America
Steve Allison – The Shaw Group
THANK
YOU!
Dan Baldwin – Leggett & Platt
Michael Bergines – eBay
Paula Gentile – MGM Resorts International
SAVE
THE
DATES!
FIRST 2012 MEETING
JAN 30- FEB 1
Afternoon Program
ENJOY LUCERNE & THE SUMMIT!