Zurich CEO Discusses Q4 2010 Results - Earnings Call Transcript

| About: Zurich Fincl (ZFSVY)

Zurich Financial Services AG (OTC:ZFSVY) Q4 2010 Earnings Call February 10, 2011 8:00 AM ET


Debra Broek – Deputy Head, Investor Relations

Martin Senn – Chief Executive Officer

Dieter Wemmer – Chief Financial Officer


Fabrizio Croce – Kepler

Caroline – Unidentified Analyst

James Quin – Citigroup

Brian Shea – Bank of America/Merrill Lynch

Andrew Ritchie – Autonomous Research

Robert Meyer – Tages-Anzeiger

Stefan Schurmann – Bank Vontobel AG

Farooq Hanif – Morgan Stanley

Michael Huttner – JP Morgan

Paul Goodhind – Redburn Partners

Vinit Malhotra – Goldman Sachs & Co.

Marc Thiele – UBS

Manish Bakhda – Citigroup

Andy Broadfield – Barclays Capital

Debra Broek

Good morning. And it’s my pleasure to welcome those in the room and also those on the phone line to Zurich Financial Services 2010 Full Year Results Presentation. I would like to remind you to please put your mobile phones and BlackBerry’s on quite mode. I would also like to draw your attention to the disclaimer and cautionary statement on slide two.

So, with that, I would like to now introduce our CEO, Martin Senn to give his opening remarks.

Martin Senn

Thank you very much, Debra, and good morning, ladies and gentlemen, good morning dear colleagues. We are very pleased to present to you today our full year results for 2010. Zurich performed well last year and the company’s financial strengths and underlying operating performance gives us the confidence to propose a dividend of 17 Swiss francs per share, an increase of 1 Swiss franc or 6%.

And as the dividend will be paid from the capital contribution reserve it will be exempt from Swiss with holding tax. Dieter Wemmer will discuss our results in greater detail in a moment, but let me just give you some thoughts and guide you through some of the highlights.

Business operating profit was $4.9 billion, a decrease of 13%. Net income was $3.4 billion, also a decrease of 13%. These headline figures mask the Group’s underlying profitability and reflect an above average frequency of significant loss events, loan provisions in non-core banking business and the settlement of a U.S. class action lawsuit.

Despite significant headwinds, our business operating profit after tax return on equity was 12.9%, with our core operating business delivering 14.3%, a strong result in the current environment. And as we told you in December at our Investors Day, we remain committed to a business operating profit after tax return on equity target of 16% over the medium-term.

Our operating businesses remain sound with continued focus on driving growth and value in Global Life and Farmers and in General Insurance achieving selective growth in those areas where we can do so profitably.

In General Insurance, we continued to manage the underwriting challenges in commercial lines throughout 2010, as evidenced by the rate increases we achieved in a very competitive market. We have seen results from our initiatives to address challenges in personal lines in Europe. Our balanced and thorough approach to risk management allowed us to continue to perform at solid levels of profitability, despite recent market conditions.

Our combined ratio was 97.9%, compared with 96.8% in the prior year. The increase was driven by the above average frequency of significant loss events I mentioned earlier. However, our underlying loss ratio improved just over 1 percentage point to 66.3%, reflecting our focus on profitable underwriting and pricing.

Global Life continued to deliver new business value growth and Farmers gross earned premium margin improved. Shareholders equity rose 15% after payment of $2.2 billion of dividends in 2010, shareholders equity was up 9% to $32 billion.

This slide shows you our dividend history, including the proposed dividend of 17 Swiss francs and as you know, the dividend is subject to shareholder approval at the Annual General Meeting on March 31st. Our policy is to pay an attractive and sustainable dividend and we believe that the proposed dividend meets those conditions.

Our ability to generate cash supports our dividend policy and we are confident we can continue to generate strong cash flows. Our strategy in General Insurance is built around profitability and Global Life’s successful growth strategy is self funded, and Farmers’ fee-based model remains highly attractive.

We performed well in 2010 and we are strategically well-positioned for the future and I should say that the economic environment in 2011 will remain challenging, and while there are signs that the macro picture improving, there are also reasons to remain cautious.

In particular, we believe investment ease are likely to remain lower and market volatility higher than in the years before the financial crisis. The insurance industry also faces a degree of regulatory uncertainty, particularly with regards to capital requirements.

However, we believe our agility, financial strength and strategic focus puts us in a position to turn these challenges into opportunities. And we see a competitive advantage in our balance sheet strength and premium plan at a time when customers remain concerned about counterparty risk.

We discussed our strategy in great detail at our Investor Day in December and I don’t propose to repeat that presentation today. It’s still early days but I would like to update you on some key initiatives our three business segments told you about in December.

General Insurance has completed mapping its portfolios against 9 Box Grid, excuse me, we showed you in December. It’s too soon to report the full results of this comprehensive re-underwriting strategy but I can tell you that through year-end and into January of this year, we have realized positive adjustments in both global corporate and North American commercial in line with our expectations.

In Global Life, Corporate Life & Pensions entered new national markets in 2010 and notched up significant new business wins in the U.K. and in Latin America in particular. Bank Distribution shifted its product strategy to meet customer needs in the post crisis environment with strong growth in Spain and in Germany.

And Farmers’ multi-channel new product strategies continue to gain traction. The Farmers Auto 2.0 product first launch in 2009 has been rolled out in 27 states as of year-end. The product is helping agents to deliver new business growth and has improved Farmers’ competitiveness in the auto market. Farmers’ new homeowners product, Next. Generation 2.0 is now available in 17 states. It’s helping Farmers increase penetration in desirable customer segments.

We are firmly focused on targeted growth in property markets and we stand ready to take advantage of new opportunities as they arise. In 2010, we made small but strategically very important acquisitions in Indonesia and in the Middle East. We increased our presence in Turkey and participated with other existing shareholders in New China Life’s capital raising.

We continue to extend our global approach to managing our businesses to capture economies of scale and we have intensified our focus on expense management, as highlighted by the expense reduction target of $500 million by 2013 announced at our Investor Day in December.

We aspire to be the best global insurer, as measured by our shareholders, our customers and our employees. And we know that for our shareholders, total shareholder return is a key performance measure and we believe that in 2010 we delivered on our promise to drive total shareholder value.

Thank you very much for your attention. I will now hand over to Dieter Wemmer, who will take you through the results in more detail. Please Dieter, I wish you success in story.

Dieter Wemmer

Thank you, Martin. So I hope enjoys to see audience. So, good morning, ladies and gentlemen. During 2010 our balance sheet and solvency position remained strong, supported by our financial and risk management actions.

We continued to execute the growth strategy in Global Life, as well as the successful integration and repositioning of the direct business at Farmers. General Insurance has remained focused on underwriting profitability and pricing discipline.

2010 was a year of significant large loss activity from catastrophes to severe weather impacting many of our customers. Additionally, we have absorbed several one-off charges during the year. With this backdrop, I’m actually very pleased with the result as we maintained our discipline in difficult markets and delivered a strong underlying result in all business segments.

Let’s look at the quarterly profit development. Looking at the top half of the slide, the Group reported a strong discrete fourth quarter business operating profit of 1.35 billion, the highest discrete quarter result during 2010.

This is despite the fourth quarter being impacted by large losses in General Insurance, adding a total load of $200 million above our 16-quarter or four-year average. Global Life delivered a solid fourth quarter result overall, as well as Farmers continued to deliver good results slightly down due to weather related losses in Farmers Re as well.

Looking at the bottom half of the slide, the net income for the fourth quarter was also the strongest discrete quarter reflecting improved investment results, as well as further reduction in our effective shareholders tax rate.

Turning now the business operating profit by segment on slide number 10 for the colleagues on the phone. The operating performance for the full year 2010 reflects a solid performance by the core businesses. With stabilized non-core businesses, our focus on profitability and targeted growth across our businesses are reflected in the results.

In General Insurance we continued to focus on profitability and drive rate increases to compensate for lost investment yield. The decrease in the business operating profit compared to the prior year is mainly due to the impact of higher level of large losses during the year combined with lower levels of earned premiums.

Through our technical pricing and other underwriting actions we continue to target consistent profitability margins as reflected in the improved underlying loss ratio year-on-year. While the Global Life reported performance is flat in U.S. dollar, actually the underlying result increased 7% reflecting higher fee income with stable expenses and improved risk margins.

Farmers delivered a strong performance in the full year. The 8% increase in BOP was driven by higher fee income from the acquisition of 21st Century and continued cost discipline. Farmers Re contributed strongly year-over-year. Overall, this reflects improved results of the exchanges, which we manage but do not own. Our other operating business charges increased, reflecting a more normalized run rate compared to prior year, which benefited from one-off gains of 200 million from buying back our own hybrid debt during 2009.

In the non-core businesses our efforts to de-risk the portfolio with the implementation of the dynamic hedge in the first quarter and the banking provision in the second quarter have stabilized the result. The banking provision has not moved since half year and the dynamic hedge has performed as planned, largely mitigating the financial market movements we experienced in this one-off Life book of business last year. Centrally managed business in total returned to profitability with even a small positive contribution from the Life one-off businesses.

So let’s turn to General Insurance. General Insurance delivered a solid underlying performance with the rate increases earnings supporting improvements in the underlying loss ratio. The reported result was negatively impacted by higher level of event and weather related losses during the whole year, including the December 2010 floods in Australia reserved at $100 million in the fourth quarter.

In addition, earned premium fell with the lower topline and investment income decline reflects the interest rate environment, absolute expenses stayed largely flat. Our stance on pricing and underwriting discipline is unchanged and rates overall continue to be up 2% on average. With gross written premiums down 3% in local currency, the overall topline trend is mainly unchanged.

Looking at the topline performance of our individual business divisions in more detail. Global corporate achieved average rate increases of plus 1% and higher customer retention, while topline was flat in local currencies.

In the U.S., the division’s continued focus on profitable customer relationships led to a further increase in retention but new business levels remained affected by our pricing discipline. At the same time, our expansion in Asia and Middle East, as well as the continued higher new business in Europe largely compensated for this.

Year to date, North America Commercial decreased premiums by 2% reflecting the challenging conditions in the U.S. However, in the fourth quarter we have seen some improvement in terms of general economic conditions and in short exposures. We executed on our rate tiering strategies and took strategic decisions to exit certain unprofitable books especially in specialty products and commercial markets.

We have started to reshape our portfolio in line with our strategy laid out in the Investor Day last December. As such, North America Commercial has achieved a 1% increase in rate in the last quarter, customer retention ratios, as well as new business are up year to date.

Europe General Insurance premiums reduced by 7% in local currency even though we have achieved rate increases, particular in U.K., Italy and Spain. Premiums were affected by lower economic activity. The personal lines business continues to operate in a very competitive market environment, where we are taking rates and continue to enforce underwriting actions.

As a result, both new business and retention rates are down in personal lines, while we are also increasing rates in commercial lines, new business volumes here are up. We are encouraged to see growth both in Switzerland and Austria.

International market premiums increased 11% in local currency with underlying growth in Latin America of 16%. In addition, we have seen growth in South East Asia, Japan and Australia, the latter being driven by top – by rate increases.

Having a deeper look at the rate changes, as said before, General Insurance rates are up by 2% in the full year with a slight acceleration in the last quarter. These average rate increases come on top of similar increases a year ago and therefore is compounded.

This is a great achievement in a market where many players have continued to focus on market share only and indicates that our margin protection efforts through differential rate increases are working. If you look into the details, we see that the distribution of these rate increases across the different portfolios show a similar pattern as at the nine months 2010 reported.

Rate increases in North America have been lower than in Europe in the full year. This is not a surprise, as we started our dedicated rate initiative in the U.S. already in the last quarter in 2008 and this compound over the increases in 2009 and have achieved the key objective to compensate for lower investment yields.

However, North America Commercial has seen rates somewhat firming up slightly up 1% in the discrete fourth quarter, ending the year flat-on-flat in total in a competitive market. Rate increases in Europe personal lines have continued to stay high as in the last five quarters and has even slightly accelerated in the last quarter in particular in the U.K.

At the same time, commercial and corporate lines in Europe saw very similar rate increases as in previous quarters during 2010. Increases continue to be a healthy level and help to support the profitability of that attractive part of our business.

The reason for the high level of rate increases in European personal lines remains the same. We have seen market wide deteriorations in major portfolios in most of the countries. As discussed repeatedly in previous quarters, the push for additional rate here is one element of the mitigating actions taken to counter these headwinds. As a result, the highest rate increases continue to be put through in U.K. and Italy.

In Italy, the profitability continues to improve through 2010 and it is very encouraging to see that our corrective measures are showing tangible results. After profitable third quarter also we posted a profit in the fourth quarter in Italy and the full year turned into positive.

The U.K. personal lines market remains a challenge and we continue to enforce mitigating actions here. As we said, at the December Investor Day, we are integrating our U.K. direct operations into the U.K. retail business as an additional distribution channel to create more operational synergies.

Turning now to the loss ratio. Year-over-year, large claims increased by 1.5 percentage points or almost 350 million, clearly affected by higher frequency of event and weather rated losses after a denying experience in 2009. I will expand on that in a minute.

Major catastrophes of 275 million or 1 percentage point includes the earthquake in Chile, already reported in the first quarter, for which we reduced our loss estimate by 25 million in the last quarter, so from 200 down to 175.

This category also includes 100 million for the 2010 flood in Australia, which are mostly driven by losses related to coal mines in our global energy business. At this time, we are working on assessing the impact of the two Australian floods, which occurred in January 2011, particularly the one in the Brisbane area. Total incurred losses are not yet known but are likely to be more severe than the 2010 event. As always, we will keep you updated in an appropriate way.

For the full year 2010, reserve releases of 1.3 billion, continue to be about 250 million higher than the year before, but include about 100 million of releases, which were linked to adjustable premiums returned to customers and hence did not impact bottom line.

Reserve releases have emerged in our main portfolios, with global corporate, North America Commercial and Europe General Insurance contributing each about 400 million net across many lines of business, like general liability in global corporate and specialties in North America Commercial.

There have also been offsetting reserve increases such as for the U.S. workers comp business of about 350 million, mostly taken in North America Commercial. Following observable trends and as well as in Germany for medical malpractice and architect liability as already reported at the nine months. Net reserve releases booked in the fourth quarter were adjusted by 500 million, at the same level as the year before.

In summary, the overall reserve adequacy is unchanged year-over-year. As a result, the underlying loss ratio in the full year 2010 improved further by 1.1 percentage points to 66.3%. Therefore, rate increases and portfolio management actions taken in previous quarters are earning into results and prove the positive trends in large parts of our portfolio.

And this, despite taking into account a number adverse impacts such as the worst winter weather in Europe and parts of the U.S. both at the beginning and the end of 2010. The negative effects of personal motor books in certain European countries such as U.K. and to a smaller extent in Russia.

Let’s have a closer look at the large losses. We said repeatedly that we have seen an extraordinary frequency of weather and event related losses in 2010. This chart shows the major catastrophe and large loss experience in each quarter of 2010 and compares them with the quarterly average over the last four years.

While two quarters were just below the average, the first and fourth quarter were clearly above driven by both major cat events, like earthquake in Chile and 2010 flood in Australia, as well as an accumulation of further large losses in the last quarter.

As such, a number of large property losses particular on business written out of Europe, increased in Q4 by over a quarter. By mean of example the two largest property claims a fire at a manufacturing plant in Europe and windstorm damage to a transshipping terminal in South America, cost almost $90 million in aggregate.

However, we see no specific trend here in terms of loss type and location. Our risk and aggregation management is effective. This experience just reflects the volatility which is inherent in a global book covering large risks like ours.

In comparison for the full year 2010, cat and large loss experience was about $250 million higher than on average over the last four years and over 6 million -- 600 million – 6 million would be nice – 600 million higher than 2009. Therefore, Q4 was really an expensive quarter in a heavy year.

Moving on now to the expense ratio. The increase in the expense ratio is largely due to lower net earned premiums, resulting from lower business volumes, return premiums and reinsurance reinstatement premiums. As such, at the same situation as reported at the nine months and we continue to work to manage our expenses also in view of achieving the ambitious cost cutting targets announced at our December Investor Day.

You can see that the other underwriting expense ratio is up 0.9 percentage points. In terms of local currency amount, the expense amount was only marginally up, driven by the absence of one-off gains benefiting 2009 and some increase in marketing expenses. We continue to actively manage our expenses as for example can be seen in the reduction of the total headcount in General Insurance by 2%, compared to a year ago.

The de-layering of the GI organization as announced at the December Investor Day has begun and to date we have reduced one-third of the targeted positions. We are well on our way to achieve the 60 million savings in this area, contributing to the cost reduction target of 350 million in General Insurance, which is the main contributor of the Group’s 500 million reduction target by 2013. In addition, we continued investments in profitable growth, for example, in our global corporate business in Asia and Middle East, as well as in operational improvements globally.

Now, turning to our Life business. Global Life continues to grow, significant insurance deposit growth in the U.K., Germany and Ireland, was the main contributor to increasing gross written premiums, policy fees and insurance deposits, by actually by 1.6 billion to now 27.7 billion, an increase of 9% in local currencies.

Fourth quarter added a further 1.8 billion through the first nine months in net policyholder flows, taking the total 2010 inflows to 5.5 billion, a 2% increase over net inflows in 2009. This is driven by higher levels of single premium products and includes about $1 billion of sales, where the product is manufactured in the European hub in Ireland but sold through non-Irish market facing units.

Annual premium equivalent in the last quarter came in 6% or $72 million less than the same period in 2009. We should remember here that last year included significant sales in the fourth quarter, relating to the Italian tax amnesty and the full quarter of Caixa Sabadell, which we deconsolidated in the third quarter of 2010. Adjusting for these two effects, APE would have grown in the fourth quarter by 2%, in U.S. dollars or even 7% in local currency.

Led by significant increases in sales in the U.K., within the Corporate Life & Pension pillars, new business for the full year grew 4%, in local currency to $3.7 billion. New business value for the full year grew 7% in local currency to reach $817 million, continuing to demonstrate market leading focus on margin in excess of 20%, combined with targeted volume growth within our most profitable pillars.

Consistent with the QIS5 definition for Solvency II, we have applied the recommended version of illiquidity premium to the 2011 carry forward MCEV and new business value, allowing for like-on-like comparisons. I trust this alignment with many of our European peers will create improved consistency and comparability in our industry. Similarly and to create further alignment, we have included an increase from 2.5% to 4% for the cost of capital applied to residual, non-hedgeable risk.

Also, this carry forward for our 2011 numbers, on MCEV and new business value, for the ease of comparison. The illiquidity premium added $76 million to new business value and $631 million to embedded value. These were partially offset by the changes in cost of capital, reducing new business value by $32 million and embedded value by 300. The embedded value operating earnings were $1.6 billion, represented an operating EV return of 9.6% for the year. The operating earnings were positively impacted by continued strong new business performance. However, were negatively impacted by lower opening interest rates, reducing the expected contribution.

Now, let’s have a closer look at the new business value. Whilst increases in volume contributed to the increase in new business value of 7% in local currency over the prior period, the majority of the positive development is the result of continued strategic focus on driving high margin business mix. For example, protection products contribute in the region of 40% to the total new business value in 2010.

The stand out value contributors were Corporate Life & Pensions led by the U.K. and Latin America, continuing to build on an effective employee benefit, consultant-driven distribution strategy. We just announced, the other day, our new strategic joint venture with Mercer, who will help us to grow our Corporate Life & Pensions sales in the U.K. Within Bank Distribution, the focus on higher margin protection products in Germany and Spain more than offsetting volume pressures on lower margin saving products, particularly in Spain.

The IFA/Broker pillar successfully leveraging the hub strategy with higher sales in Italy, combined with volume and margin improvements in Germany and direct and central initiatives creating value through fee income in the U.K. and direct sales in Japan. Headwinds to the new business value came from the Agent pillar, primarily driven by the U.S., Switzerland and Hong Kong, partially offset by good volume and margin improvements in Germany.

While new business volume in the U.S. remained partly flat, margins continued to come under pressure from higher average interest rates and changes to lapse and expense assumptions. In Switzerland, customers concentrated their buying towards the end of 2009, in anticipation of the change in the technical interest rate on January 1, 2010.

Now, let’s look at the profit by source analysis for the Life results. The underlying Global Life business operating profit before special operating items increased as I said before, by 7%, to $1.3 billion. Including special operating items, which made a lower contribution in 2010 than in 2009, reported business operating profits remained flat at $1.5 billion or an increase of 1% in local currencies.

Global Life continues to be well positioned to fund its gross new business cost from the in-force business. The business in-force expense margin increased 21% in local currency as a result of growing fee levels and our focus on expense management, which is evident, looking at flat administration expenses through business operating profit year-over-year.

The risk margin improved 8%, in local currency as the continuing value creation from our Protection Lines of business emerges into profit. The investment margin has decreased 14% in local currency, mainly as a result of pressure on investment income, net of policyholder participation, in a low interest rate environment. The interest depreciation, amortization and non-controlling interest line have increased, primarily due to the amortization of capitalized software as we keep investing in the industrialization of our business.

The gross new business (inaudible) increased in line with the growth of our top line, to $1.75 billion. This is net of a reduction of about $50 million in non-deferrable distribution costs. Grossing up for this effect, the net deferral ratio of new business related expenses and fees remained stable at around 89%. You find more detail in the appendix regarding the Global Life profit by source results.

Turning to the last segment, Farmers. Farmers has again produced a high quality set of results, starting with the Management company, the margin on gross earned premium remained strong, at an excellent 7.3% as we continue to manage our expenses through various initiatives. Year-over-year, business operating profit has increased by 3% to $1.4 billion, resulting from a higher top line at the exchanges, driven by the acquired 21st Century business.

Moving to the Reinsurance part of Farmers. Premiums have been affected by changes in the level of participation in the quota share treaty in both years. In line with the intention expressed at nine months, the participation level was further decreased to 12%, as of December 31, 2010. As you may recall, we had already decreased the level to 25% at half-year. As a result of better underwriting performance and higher investment income, operating profit increased to $321 million.

Gross written premium, at the Farmers Exchanges, which we manage but do not own, increased by 3% in the full year driven by 21st Century. In the discrete fourth quarter, total gross written premium reduced by 1.1%, compared with the fourth quarter in 2009, exclusively by the continued run-off of 21st Century’s Agency Auto business.

21st Century Direct continues to see improving retention and strong growth from new business. Retention rates are slightly above comparable levels actually to 2008. New business numbers continued to increase strongly and are up 67%, year-over-year, the highest level in the two years. And January 2011 confirms this trend of accelerated growth with an increase of 65%.

We are pleased that premiums in the discrete month of December have increased 2.7%, over prior year, a clear confirmation that direct premiums are finally turning the corner. Excluding this acquisition, the Exchange’s top line has reduced by 2% overall, largely driven by the Auto book, the result of the difficult economic environment in the U.S. and competitive pressures.

However, it is encouraging to see that this rate of underlying top line reductions continues to decrease and that the change in overall policies in force has already stabilized in the third quarter and is being confirmed in the fourth quarter. We are pleased that Farmers new Auto product, also mentioned by Martin, which allows a much more granular pricing segmentation is improving new business and Farmers new Homeowners product is starting to follow suit.

The headline combined ratio is 98.7%. It’s slightly better than last year. Higher weather-related losses in Homeowners were more than offset by favorable loss trends, particular in the Auto and Specialty lines as well as rate increases on the Homeowners business. Net surplus increased by $200 million. The surplus ratio closed at a comfortable 42.2%, despite lowering the quota share twice in 2010 to now 12% at the year end a level we feel comfortable with for the future.

Now, let’s look at our investments. Total return on Group investments was 5.4% for the full year, down one percentage point from 6.4% in the prior year. The net investment result increased by $2.1 billion to $8 billion. This represents a net investment return in the P&L of 4.1%, actually 1% higher than in 2009, driven by realized gains.

The net capital gains comprised $1.9 billion of positive revaluation as well as gains on the sale of bonds and equities, partially offset by the $1 billion of impairments. Though unrealized capital gains reduced in the fourth quarter as interest rates rose significantly, unrealized capital gains still added $2.5 billion to the total return during 2010. While debt securities fell in value in the last quarter, gains on equity securities increased, largely due to an approximately $1 billion revaluation of our participation in New China Insurance.

Moving to shareholders’ equity. The strength of our balance sheet continues to be a key component of our value proposition. Shareholders’ equity ended the year at $32 billion, reflecting an increase of $1 billion in the quarter. The net income attributable to shareholders contributed a billion, after an effective tax rate of 20.3%, two percentage points better than 2009. The net unrealized gains and losses on investments reduced by $700 million.

The fourth quarter movement in the foreign currency was less severe than in the other quarters, having only a small negative impact on shareholders’ equity of $234 million. Net actuarial gains on pension plans was $745 million for the three months, reversing the loss of earlier quarters predominantly driven by interest rate movements, partially offsetting the loss in our bond portfolio.

We’ll have a look at our solvency position. Our Solvency I ratio increased by two percentage points to 243% in the quarter. The ratio primarily benefited from the $700 million undated subordinated debt issue in the fourth quarter positively impacting available capital. This was offset by the accrual for the proposed dividends. The required capital remained broadly flat.

Moving now to our internal economic solvency model on the right side of the slide. The ratio has strengthened by 5% to 119% during the quarter as available capital increases were partially offset by increases to the capital requirement or RBC. The primary driver of the 5% increase in the ratio came from positive equity revaluation in the quarter. However, as you would expect, the rising equity values also result in an increase to the risk charge associated with those equities, pushing up the required RBC.

Overall, equities still contributed positively to the ratio. Whilst the effects of modest rise in interest rates in the quarter are largely offset within the available capital, it did go some way to ease the pressure on risk-based capital as we saw it in Q3.

Further reductions in the capital requirement came from a reduction in the Farmers quota share to 12% from 25%, leading to a reduction in premium and reserve risk. This was partially offset by an increase in the catastrophe loading, following revised model assumptions.

Once again and consistent with our forward-looking methodology, we have deducted the final accrual for the 2010 dividend proposed to be paid in April 2011. As mentioned previously, the proposal is for 17 francs dividend per share. Whilst we have included the effect of an illiquidity premium and adjustment to the cost of capital in the carry-forward EV, these effects have not yet been included in the economic solvency ratio as we continue to assess the impacts.

In addition, we remain comfortable with this surplus position, which remains within our 110% to 120% target range for economic solvency. As a reminder and as mentioned at the Investor Day on December 2, we plan to publish our year-end Swiss solvency test ratio along with the Q1 reporting, once filed with the regulator first.

To simplify external communication, we will use our internal model solely for internal purposes during 2011 and onwards. To allow for a meaningful comparison, we will provide parallel disclosures during the year.

Now, let’s close with a look at the dividend. As clearly stated, throughout 2010, our dividend policy remains to pay a sustainable and attractive dividend. As Martin already mentioned, we have proposed a dividend of 17 Swiss francs, which we expect it to maintain Zurich’s position as one of the top dividend payer in the sector.

This is an increase of 6% over last year’s dividend, in addition to the Swiss franc appreciating 11% against the dollar and we report our net income in dollars. Our intention is to pay a dividend which is sustainable over medium term and which, therefore, reflects our confidence in sustainable cash flows and our expectation for future growth opportunities.

We will continue to run our capital management on these principles and look forward to being in a strong position and being able to take advantage of economic upturns as they arise. In addition, we plan to utilize up to 15 billion of additional paid-in capital to continue to pay our dividends, free of Swiss withholding tax, for the next year.

This offers a considerable income tax benefit to our Swiss retail investors as well as other investors, depending on their local applicable tax situation. Looking at the book value per share in Swiss francs in the top left-hand corner of the chart, this book value per share reduced to 202 francs and as the dollar lost against the Swiss franc, this is actually a very strong number.

So now, let’s move back to Debra and to the question-and-answer section.

Question-and-Answer Session

Debra Broek

Thank you, Dieter. (Operator Instructions) Yeah Fabrizio.

Fabrizio Croce – Kepler

Fabrizio Croce, Kepler. And just two questions. The first one is a very small one, it’s about the SST update. Usually, you say that the figure is over 200%, now the question is, simply, if you are still as confident as you used to be on this figure? And the second one is about ROE. The return on equity actually dropped considerably to 11%. This is also to do with the shareholders’ equity, which went up pretty sharply.

However, I think that 11% is a little bit more sector average while you have a multiple on the sector. And so the question is, will you address this low ROE actually, rather with a capital repatriation, some transformational M&A or by addressing higher profits? Because at the end of the year, I suppose that you are, as well, not happy with the 11%.

Martin Senn

Thank you, Fabrizio. That’s a big question actually. But let me try to tackle it and I’m sure Dieter will have some additional thoughts. First on the SST, we have, I think, the same confidence in the strength of the balance sheet and the strength of the solvency. And I wouldn’t expect that to have changed, particularly, as well, if you look obviously about the development on the economic solvency as we have reported now from 114 to 119, I would think that wouldn’t impact the SST calculations negatively. But we will publish the SST number later on as Dieter has referred to in his presentation.

Now, with regards to the ROE question. Clearly, we are reconfirming and are committed in the medium term to generate business operating profit, after tax return on equity of 16%. If you normalize -- well, I shouldn’t say normalizing, but rather look at the core businesses return for last year, the respective return was 14.3%, which we consider a very, very strong result, given the market developments, given the challenges we have faced and also given, obviously, the very strong capital position we have.

And with that, I probably swing to the core of your question, with regards to M&A capital repatriation. Our capital management is solid, it is disciplined. Dieter might want to add to that. And obviously we have mentioned, I think, the last three years already, right at the outbreak or before the crisis even and the outbreak, we mentioned that we said we’re going to have a very attractive dividend philosophy, on the base of being sustainable.

But we also mentioned that, during those days, we want rather be a bit overcapitalized than undercapitalized and whilst the outlook for us on, say, the macro picture has somewhat improved, we still think it is fair to remain somewhat cautious because investment returns and the volatility as such will still be low the levels we had pre-crisis.

And Dieter, sorry, just to add, Fabrizio, with M&A related issues, we naturally looking to grow the business organically and inorganically and if there are any opportunities, which is in line with our high return expectations and is adding to our strategic intention and obviously as well create shareholder value, we’re very open to do so. And I’ve mentioned in my introduction, we did some small transactions last year which we consider very, very important strategically.

The acquisition in the Middle East gave us four licenses into four countries, where we see great future prospects and the same obviously with Mayapada Life into Indonesia, which is one of the fastest growing Life Insurance markets. And we will continue looking at such opportunities and if they occur, we would like to execute on it. Maybe, Dieter, you want to? That was good enough?

Caroline – Unidentified Analyst

Sorry, I also have a question about M&A. You were in the news a bit with Quinn Insurance in Ireland. I was wondering, can you say anything about that? Is that something you would be looking at? And you mentioned twice, now, that you continue to look at opportunities. What kind of opportunities are these? Is this mainly emerging markets or where do you see growth opportunities for Zurich?

Martin Senn

We’re not commenting as a principle to any specific M&A related opportunities. So I cannot please you in responding to your first question, [Caroline]. With regards to the opportunities to grow the business, clearly we see opportunities for Zurich across the globe and not only in the emerging markets but also in the mature markets. Zurich has the size, the strength, the presence to continue growing in mature (inaudible) and emerging markets, naturally, as the big part of our business operating profit generation occurs in more mature markets, we want to look strategically more at the emerging markets.

And the emerging markets covering the whole globe, Latin America, Asia, the Middle East and I have referred to two opportunities, just before, in Middle East and Asia, but also Latin America. These are the regions where we see as an organization, as a brand, we have a tremendous opportunity to play. We see, as well, that our brand is very well recognized.

And I was just in the Middle East a couple of months ago and I was amazed how welcome you are as well as an organization, by the authorities and how well supported we are. And this is very much the case across the globe and with regard to that, we will capture opportunities, as they arise. Having said that, we don’t feel pressured in any way.

So if you talk M&A, I really want to make the point that we don’t think we have to now jump. We are patient people. This organization is nearly 140 years old and this organization will grow continuously and strengthen its position in the future. So there is no need to rush into anything and we’re going to stick and remain to the discipline we have shown and execute on M&A in a successful way as we, for example, did with the Farmers acquisition of 21st Century.

Debra Broek

Okay. I’ll probably move to the phone line now, if I could?


The question on the phone is from Mr. James Quinn, Citigroup. Please go ahead, sir.

James Quin – Citigroup

Hi. I have two somewhat related questions, please. The first one, I was wondering if you could talk us through how you think that claims costs are tracking against your expectations in the U.S. A number of U.S. companies were -- it’s very clear they see claims costs as continuing to be very benign. I was wondering what -- how you would characterize it and clearly, within that, you’ve taken some charges on Workers’ Comp, but do you see any sign of those early trends in other lines of business?

The second question is on reserve releases. Would you characterize these reserve releases as running in line with the expectations or would you say that this reflects, perhaps, some of the continued benign claims trends, which are leading to, perhaps, slightly higher reserve releases than you might have otherwise expected? Thank you.

Dieter Wemmer

James, I think that’s a question for me. Actually, I consider the two halves of your question as one integral question because it would not be possible to answer one side without the other. We have taken Workers’ Comp in the third and fourth quarter, in particular, overall, a charge of $350 million to prior year and then, what you would not see in prior year, we have also strengthened the reserves for the current accident year in Workers’ Comp. And here, we have seen an uptick in loss trends, in particular, severity, which did lead us to the changed assumptions.

On the other line of businesses we are, actually, much more positive. Whether this is now an overall industry trend or actually more, the benefits from all the underwriting changes we did over the last three, four years and all the new pricing models we implemented over the last years, where we were maybe more optimistic on the underwriting side than our original reserving was given credit for. And therefore, we see now, with lower incurred losses, really justification to reserve -- release reserves carefully. And I think that it’s probably both sides. So I’m not commenting on industry trends here.

James Quin – Citigroup

Okay. Perhaps if I could come back to how the current year…

Debra Broek

Okay. We’re taking other question from the phone lines, please.


The next question is from Mr. Brian Shea, Bank of America/Merrill Lynch. Please go ahead, sir.

Brian Shea – Bank of America/Merrill Lynch

Good morning. I have two questions, please. Hold on, just a moment. Sorry. I hope the sound quality is better now. On the large losses, we had really bad weather in the U.S. East Coast and Europe, in Q4, lots of snow, does that make it into your definition of large losses or is there possibly an additional impact on the underlying combined ratio from that effect?

And then, secondly, I am not disappointed that you’re not growing, please accept that as a preface, but do you have any optimism that you can start growing in 2011 in non-Life?

Dieter Wemmer

Okay. So our last loss definition is usually $10 million and we are also bundling this special winter-related claims, like the bursting water pipes in England or Ireland. But you are right, we are not -- single car accidents, which are driven by slippery roads, we would not show under large losses, because they are still different events. So therefore, there is some ambiguity between bundling the weather-related events and the underlying loss ratio.

I think we certainly, it’s important as that we get the profitability right for our general insurance business. Therefore, we are not pressuring our management in general insurance to deliver a strong topline growth as we said, many times, that we get the combined ratio in the direction that it’s really market leading. That is, clearly, target number one.

Still, I think there are some areas, in particular, our positioning with the large corporate business where we can be more positive.

Martin Senn

And if I may add – Hi, Brian -- also, the mid market segment, we believe that there’s a pretty good opportunity for Zurich to grow in General Insurance, this is one area Mario Greco has highlighted as well, as some of his growth priorities at the last Investor Day in December.

Brian Shea – Bank of America/Merrill Lynch

Thank you very much.

Debra Broek

Okay. We will take one more from the phone line and then we will come back to the room.


The next question is from Mr. Andrew Ritchie, Autonomous Research. Please go ahead, sir.

Andrew Ritchie – Autonomous Research

Hi, there. If I look, the two problem areas, particularly last year, were Italian Motor and U.K. Motor, we can see what’s going on in Italy, but it’s quite hard to tell what’s going on in U.K. Motor, given noise from winter weather, etc. Could you just give us an update on the profitability of the U.K. Personal Motor book? And I think you were trying to suggest your -- thought rate increases had accelerated in Q4. Just more comment on that.

I guess the other thing, just on Farmers, I’m still a bit confused on the outlook for top line growth, because there wasn’t really any improvement in Q4 as a whole. I think you were trying to suggest December was meaningfully different.

And of these new product launches kicking in, will we see real evidence of improved top line as early as Q1? Or just a bit more color, again, on that would be helpful. Thanks.

Dieter Wemmer

Okay. So I think in U.K. Motor, we are still in a combined ratio above 100%. So therefore, we cannot declare victory and certainly the general difficulties in this market were aggravated by the December weather and you probably have seen the ABI announcement yesterday, actually, who gave numbers for the total loss loads of this four weeks between end of November and end of December, which was substantially higher than already the expensive 2009 December.

So that is probably something we are not yet putting to our long-term averages and price rate.

Farmers’ top line, I think it is not only that we are optimistic. When we look at policy in force numbers, where we lost in end of 2009 and early 2010, still up to 50,000 policies a month in the portfolio, the policy in force have, actually, stabilized already at the end of third quarter and with small increases in the policy on force numbers, I think, the fourth quarter and also the beginning of the year clearly show a turning point of the premium income. And in particular, I think now our direct business is turning to positive.

It took us much longer than expected to get rid of the AIG history and retailers’ sentiment linked to the name. So therefore, I think we are now through this and we can really say that we have successfully completed the turnaround of this direct channel and looking into a much brighter future.

Andrew Ritchie – Autonomous Research

Sorry, on the U.K. Motor --

Debra Broek

Okay. Coming back to the room then, could I take a question, yeah sir?

Robert Meyer – Tages-Anzeiger

Robert Meyer, Target Anzeiger. Could you give us a little bit more insight in the Life business in Switzerland where you witnessed a sharp decline in the new business last year? Is this a one-time effect or do you expect further declines in 2011?

Dieter Wemmer

Certainly we are not expecting further declines in 2011. I think there is, clearly, potential for upside, but also, you have to consider our overall strategy. The interest rates in Switzerland are very low. The technical interest rates for the Life policies got decreased on January 1, 2010.

And we are not -- when you look at our Life strategy, we are not really strongly promoting guaranteed interest rate products in particular in times of a low yield environment. Our strategy is clearly to focus on unit-linked policy, Corporate Life & Pensions and also risk protection, whether it’s for mortality or disability risk.

So therefore, in line with our strategy, Switzerland will continue to be a difficult market in new business volume, but having said that, there is still upside for 2011.

Martin Senn

If I may just add to that as well, we have been very pleased that last year, as part of our strategy and multi-channel distribution strategy, we were able to agree with Credit Suisse to distribute Life products through the banking channel, together with Credit Suisse. So we have, here, a very reliable and solid partner. And that’s in line with our strategy as we, as well, covering the business in other parts of the world.

Debra Broke


Stefan Schurmann – Bank Vontobel AG

Yeah. Stefan Schurmann from Vontobel. Just two small questions. The first one is on New China Life. Just can you maybe go through that again? You revalued that by $1 billion, can you tell us how much this is now valued in your full year accounts?

And the second one, on impairments in Q4, I saw you had like $374 million in other. Could you maybe elaborate on that?

Dieter Wemmer

Well, New China Insurance, it’s in our accounts held as available for sale equity investment. So therefore, we have to always to book it at market. Based after the capital increase or during the capital increase there were quite a number of observable and public announced transactions on the stock. Therefore, we have a market reference which we then had to use also for the valuation. That is, actually, not a discretionary decision.

Your question on the other non-core businesses, maybe you can repeat precisely what you wanted to know?

Stefan Schurmann – Bank Vontobel AG

So back to New Chine Life, meaning what’s the value now in your accounts, at the end of the year, the stake you have? And the question was on other investments, you had impairments of $374 million. Just trying to see what details that is?

Dieter Wemmer

That is mainly the various derivatives we have for hedges and that input [swaptions] but also equity hedges we have in place and also cash flow hedges on foreign currency. So for these hedges, certainly the fourth quarter was a negative quarter.

And on the New China Insurance, well we raised it roughly by $1 billion. We have invested around between $550 million before, so that gives you roughly the number.

Debra Broek

Okay. We’ll move back to the phone lines then. I believe we have a number of questions there, yet?


The next question on the phone is from Mr. Farooq Hanif, Morgan Stanley. Please go ahead, sir.

Farooq Hanif – Morgan Stanley

Good morning. Farooq Hanif from Morgan Stanley. Two questions. At the Investor Day you updated us on cash flow and you told us that, year-to-date, you had $3.9 billion up to the Group. Obviously, the central cash outflows were, sort of, between $600 million and $1 billion. Can you update us on the full-year cash flow according to that kind of model?

Secondly question is, when you talk about your rate increases and the 2% achieved on the book, how is that comparing to claims inflation? Clearly, everyone is worried about inflation. What is the real net picture in that book? Thanks.

Dieter Wemmer

Okay. I start with the second question. Actually when we produced this comparison slide for the loss ratios, where we are talking about the underlying loss ratios, this underlying loss ratio includes a net effect of rate increases, changes in inflation and also other underwriting actions taken. So, as our underlying loss ratio moved 1.1 percentage points down, so the overall effect is really very successful.

On the cash flow, we are not planning actually now to update this slide on a quarterly basis, but the picture has not really changed because the picture we showed at Investor Day, I think, showed the numbers up to November or early November. So therefore, the last six weeks have certainly moved in the same trend, but there is not a huge difference in this number when we would do to a full year end reporting.

Farooq Hanif – Morgan Stanley

Can I come back on one point?

Debra Broek

Okay. We can take another question from the phone lines please?


The next question is from Mr. Michael Huttner, JP Morgan. Please go ahead, sir.

Michael Huttner – JP Morgan

Thanks a lot. I had a question on the tax rate, the 20.3%, to check what you see as the kind of ongoing tax rate, going forward? And then, coming back to the issue of the combined ratios by country, I think you discussed the U.K. a bit, I’m still hugely puzzled by the U.K. I don’t understand what’s happening there, but maybe I’ll understand one day.

But my question here is on Germany. You say you provisioned extra, but the combined ratio is 104% in Q4. It still doesn’t look brilliant for a country where all the other participants, as far as I can see, are experiencing actually a quite benign claims at the moment. So I am really puzzled by that. I am just wondering whether you missed something in the past or something, I don’t know. But if you could help me, I’d be very grateful.

Dieter Wemmer

Okay. So, the tax rate in 2010, I think, was also positively impacted by closing some open items from historical tax years, with tax authorities. So, therefore, I would consider the achieved tax rate probably a bit better than the long term sustainable level.

On the combined ratio, yeah, on U.K. you should not give up in dwelling deeper into it, we will certainly help you in our future discussions, in particular with the IR team. But Germany had, in the last quarter, no further prior year development. So that was mainly in the first nine months.

However, we increased, for the current accident year, reserves which should be then spread out over all four quarters where we took, I think, in some personal lines business, legal protection and Motor some increases. But also Germany had some, really last days of December, large losses, which certainly are not in average over the years, that was also a bad December for this book of business.

Michael Huttner – JP Morgan

Thank you very much.

Debra Broek

Okay. One more question from the phone lines, please?


The next question is from Mr. Paul Goodhind, Redburn Partners. Please go ahead, sir.

Paul Goodhind – Redburn Partners

Yeah. Thank you. Could I dig into the European volume growth in a bit more detail? It was down 7% on a constant currency basis, but your rates are up 4% to 5%. So you are still down in a 11%/12%, I guess, on an underlying basis. Is there any sign that that is stabilizing? It doesn’t look as though there is, if I look at the Q3 versus Q4 number, but how do you see that volume progressing in 2011?

And on the U.K., again, if I can just press a little bit on the Motor business, are you still seeing very concerning trends on the bodily injury side or is there a sign that those are stabilizing to some extent? Thanks.

Dieter Wemmer

I think, on European personal lines, well I think there is a combination of several factors. There is, on one hand, our more aggressive re-underwriting in countries like U.K. and Italy. There is certainly more pressure from the customer side who are also in economic challenging environments. So therefore, you are not seeing any additional new purchases, so there is less buying from customers.

And I think we have also to look at a very special effect in the German portfolio. We are selling a lot of multi-year policies and these are five-year umbrella policies for covering all personal lines risks. And in Germany, the insurance contract law changed from five years to three years.

That means, based on our IFRS premium recognition principles, we have now to rebook from five years to three years. So that is actually only an intangible premium income because the cash paid premiums are not affected by this. But, that is a big one-off in 2010 and should, therefore, be not, not being repeated.

On the claims side, on U.K. Motor, well I think besides what I mentioned already before, that there was a substantially higher frequency in December, I think, indeed, severity is more stabilizing during the year or at the end of 2010.

Debra Broek

Okay. Another question from the phone lines please?


The next question comes from Mr. Vinit Malhotra, Goldman Sachs. Please go ahead, sir.

Vinit Malhotra – Goldman Sachs & Co.

Hi, morning. Thank you. This is Vinit from Goldman Sachs. Just focusing on the NAC premium increase or rate increase of 1% in the fourth quarter, you do mention that middle market commercial business is showing positive trends in your report. Now, I remember that, three years ago, the small businesses were sold to the Truck Exchange. Do you ever wish that you had not done that?

And would you rather be focusing now on the small segment, also given that we see, in the CIAB survey the very positive competitor and the small businesses? That’s my only question really. Thank you.

Dieter Wemmer

Well, actually, I’m happy to take this question. No, we are not regretting this move of the small business from NAC to Farmers, for the very simple reason you need to build your organization and processes around the type of customers you are servicing. And the Farmers organization is including the former Zurich small business, actually one of the largest providers for small business customers in the U.S. market.

There is a market where you have four, five companies fighting for the lead in this market and Farmers is slightly ahead of the others in volume. That means, you have really processes who deal with customers who pay, let’s say, between $2,000 and $10,000 annual premium.

And North America Commercial, our business is very much focusing on customers actually starting up from $50,000 premiums onwards and that is a completely different set of processes and also specialty people you have. And therefore, as insurance business has really to be industrialized, that you have really to focus with your processes on your customer groups, that is the right split.

Vinit Malhotra – Goldman Sachs & Co.

Thank you very much.

Debra Broek

Okay. One more call from the phone lines, please?


The next question is from Mr. Marc Thiele, UBS. Please go ahead, sir?

Marc Thiele – UBS

Thank you. Good morning. My first question is related to General Insurance and the outlook in the U.S. Yesterday, AIG took a big reserving hit, one of your key competitors and some of the other names seem to have slowed down, in terms of the rate of reserve releases. I was just wondering if that makes you more optimistic regarding the pricing outlook beyond the small improvement that you show on your rate monitor?

Second question is related to the embedded value report. It seems that there is still no illiquidity premium included. In the short print it says that the 10 basis points were translated to $175 million.

My question is, if I want to figure out the solvency impact of Zurich adapting a illiquidity premium, is that the right sensitivity I should be applying by taking that measure, or is there something else I need to consider?

Dieter Wemmer

That’s a very technically complicated question, but I will give it a try. So let me first start with the outlook in the U.S. and AIG and the reserve releases. Well, first of all, we are not commenting on how other peers are managing their total reserve numbers. Certainly, we would take this as an indication that pricing, also from this competitor becomes more prudent, going forward, but that is always only a hope and we should not build our strategy on hope.

I think much more tangible for the outlook of our General Insurance portfolio is that, actually, the interest rates moved away from their low point, which we have seen probably mid-October. And we have, actually at the moment, a substantial better outlook on achievable investment income, which helps them indirectly the pricing of our long-tail business in the U.S., in particular when you are able to keep your rates at the same level.

On the illiquidity premium, that is mainly a matter for the Solvency II world. So, that would, therefore, from a solvency point of view, affect only our European or EU based carriers after the implementation of Solvency II and then the number you have mentioned, that is probably a good reference point.

Marc Thiele – UBS

Thank you.

Martin Senn

If I may add, Marc, just more holistically to our reserving, years back we have started in a systematic way look on the way on how we’re reserving and what the reserving process is. This has led to the Zurich way of reserve management.

And we have, on the back of that as well, for last year and I would expect, moving forward, a very high confidence and the degree of confidence, that our overall reserving is solid and sound. So I would not, on the back of adjustments in the marketplace by other competitors, feel in any way pressured that our reserving needs any adjustments.

Marc Thiele – UBS

Thank you.

Debra Broek

Coming back to the room, the, we have a few minutes left. Do I have a question in the room?

Doesn’t look like it. I think we have one or two left on the phone lines. So if we could take the next one, please?


The next question from the phone is from Mr. Manish Bakhda, Citigroup. Please go ahead, sir.

Manish Bakhda – Citigroup

Hi. Good afternoon. Just from the credit side here, the question I have is on refinancing. I know at an earlier conference call it was suggested that there’ll be some sort of update in the coming months.

I’m wondering if you have any further comments to make around refinancing, I guess, in the months ahead and know there’s an €800 million senior bond due to be maturing next April?

Dieter Wemmer

Well, I think on refinancing, we do this -- we take this step by step and we are not pre-announcing any activities. But the maturity schedules are disclosed in the annual report and I have nothing to add to this.

Manish Bakhda – Citigroup


Debra Broek

Okay. We will take our final question then from the phone lines, please?


The final question for today is from Mr. Andy Broadfield, Barclays Capital. Please go ahead, sir.

Andy Broadfield – Barclays Capital

Hi there, guys. Thanks for taking this question. First question is actually on the large losses, just coming back to something, I think, Brian was asking earlier. If I go back as far as you’ve disclosed, I think, 1.7 billion was the first number you disclosed in ‘07 and that sort of crept up, gradually up to 2.4 billion.

You’ve given some explanations for the reasons for those as high Life losses. I was just wondering if there’s anything else underneath, in terms of the way that you are collecting that data?

Whether there’s been developments in the levels or the assumptions on those large losses which is perhaps explaining that climb up and which is also obviously having an impact on the measurement of the underlying combined ratio as well? That’s the first question.

The second question, just on solvency ratio, I think you mentioned that the current internal model doesn’t include the illiquidity premium and that you were going to perhaps give us a little bit more on that, I think at a later date, but, if I can just pre-empt that and ask you whether there’s a range or a sense of the additional capital benefit that gives to you, that would be very helpful. Thank you.

Dieter Wemmer

Well, I think on the solvency model and internal model, I think that it’s not just a number where you can adjust the discount rate also, that would certainly pump the economic solvency ratio up. It is a question of model consistency and we have built our own whole internal model around the swap curve. And therefore, that would be a clear deviation from this and therefore, we have now to see how we bring these different schools of thinking together.

Maybe I add here a personal comment, this liquidity premium formula has been developed by the CFO forum and the CRO forum and then been agreed with the EU Commissioners actually to use this for the QIS5 exercise.

Then companies have started to use this or other versions of liquidity premium in their embedded value calculation and clearly, now with agreeing with some other large competitors that we want to really set a standard here, we are now really trying to push a more use of exactly this type of formula and that is mainly the idea behind it to make a new business value and MCEV numbers more comparable across our industry.

So, we have not translated this into then internal models or solvency question. On the large losses, the definition has been stable over the years and we have used 7.5% as a large loss/loss ratio as a reasonable and stable guidance over the last years and we don’t see any reason to deviate from this.

When we look at the individual reasons for the large losses, there is no trend that we have to say we need to change underwriting practice, our portfolio has changed. We feel that is very stable and it is probably a volatility which we have to accept, but also, we’re really watching this and we have a postmortem analysis on each and every large loss exactly to answer your question and the – your [rates].

Andy Broadfield – Barclays Capital

Okay. Thanks.

Debra Broek

Okay. Thank you. With that we will close the Q&A session and I turn it back over to Martin for his closing remarks.

Martin Senn

Thank you again, Debra. Thank you all for your kind attention this morning here in Zurich, but also on the phone and also thank you very much for your questions.

Zurich performed well last year. Our proposed dividend of 17 Swiss francs is an expression of our confidence we have in our agility, our financial strengths and in the strategic focus. The headline figures for 2010 were affected by an above average frequency of large loss events and other items and mask the underlying profitability of our businesses.

Our operating businesses remain sound with continued focus on driving growth and value in Global Life and Farmers and in General Insurance, achieving selected growth in those areas where we can do so profitably.

Our business operating profit, after tax return on equity, was 12.9% and our core operating businesses delivered a return on equity of 14.3%, a strong result in the current environment. We are firmly focused on targeted growth in profitable markets and stand ready to take advantage of new opportunities, as they arise.

We are confident we can continue to generate strong cash flows. Our strategy in General Insurance is built around profitability and Global Life’s successful growth strategy is well funded and Farmers’ fee-based model remains highly attractive.

And I would like to end now by thanking our over 60,000 employees around the world. I want to thank our agents, distribution partners, brokers and other counterparties for their efforts in helping Zurich to deliver these results.

And I would also like to mention that our employees and agents demonstrated, once again, for 2010, that they deliver when it matters for our customers. And I would obviously, as well, like to sincerely thank our customers for choosing Zurich and for giving us their business. And of course, I also want to thank our shareholders for their ongoing support.

This is a great partnership with all stakeholders and we at Zurich truly appreciate it. Thank you very much and I wish you a good day.

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