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Executives

Debra Broek – Head, IR

Martin Senn – CEO

Dieter Wem – CFO

Analysts

Spencer Horgan – Deutsche Bank

Andrew Ritchie – Autonomous

Farooq Hanif – Morgan Stanley

Andy Broadfield – Barclays Capital

Michael Huttner – JPMorgan

Stefan Schurmann – Bank Vontobel

Vinit Malhotra – Goldman Sachs

Ben Cohen – Collins Stewart

Michael Klien – Nomura

Robert Heine – JPMorgan

Zurich Financial Services Ltd. (OTC:ZFSVY) Q2 2011 Earnings Call August 11, 2011 7:00 AM ET

Operator

Good morning or good afternoon. I am Moira, the chorus call operator for this conference. Welcome to the Zurich Financial Services Half Year results reporting 2011 Analyst and Media Presentation. Please note that for the duration of the call all participants will be in listen-only mode, and the conference is being recorded. After the introduction there will be an opportunity to ask questions. (Operator Instructions) This call must not be recorded for publication or broadcast.

At this time, I would like to turn the conference over to Mrs. Debra Broek, Head of Investor Relations. Please go ahead, madam.

Debra Broek

Thank you and welcome everyone. Thank you for joining us. I am here today with Martin Senn, our CEO and also Dieter Wemmer, our CFO. And so I would just like to now turn it over for some opening remarks from Martin and then we will turn to Q&A. Martin?

Martin Senn

Thank you very much, Debra and good morning, good afternoon everybody. Welcome to this call. Before opening up to your questions let me just give you some additional comments to the business developments. Over the past months, we have continued to successfully execute in our strategy. I think we have progressed very well and I would have diversification into higher growth markets, we have maintained our strict focus on margins, on pricing and portfolio management. And the outcome of all these actions and the outcome of this focus are probably today’s strong numbers which have been delivered in a very challenging period.

We believe that there is a good step forward but let me be very clear, me and my colleagues also believe that there is more to do. I am very pleased with our very strong second quarter results. They were driven by an excellent underwriting performance by improved top-line growth across our three business segments and by continuing progress in implementing our strategic initiatives.

Our businesses still continue to generate strong cash flows and our capital base is starting to position remain strong. We’ve now been anticipating that the environment I think we have broadly saying that already a year-and-half or two years ago, that this environment in which we operate would remain challenging that the economic growth in many of our core markets would remain below potential and that volatility in the financial markets would remind high if not going higher and that obviously as well always as we them now and continue to see them our affecting investment income.

Now unfortunately this is proving to be correct and probably we navigate these challenges we continue to look ahead to be optimistic with how Zurich is positioned and with that we will stick to our targets, we remain focused on the successful delivery of our strategy.

And with this introduction I would like to now open the floor for any questions and Dieter Wem and myself are very happy to take your questions. Thank you very much.

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. (Operator Instructions). The first question is from Mr. Spencer Horgan from Deutsche Bank. Please go ahead, sir.

Spencer Horgan – Deutsche Bank

Good afternoon, thank you very much. And could I go maybe straight to the probably embarrassingly predictable question, which is around the dividend in the context of the strength of the Swiss franc and I mean I think in previous quarter you’ve tried to get fairly strong message in terms of the dividend and obviously the Swiss franc is moving quite remarkable pace. So I understand the carryout about to being a Board decision and year-end season so and so forth. Could you may be at least give us your thoughts on that one, but and the second one is we pointed to the improvement in the combined ratio and these improvement action your loss ratio before natural cost wages is quite significant year-on-year and quarter-on-quarter, I think it sort of 63% in the second quarter. Is that sensible base was to the thinking about from here or other any particular special effects in the second quarter tax in your loss ration? Thank you.

Martin Senn

Thank very much, Spen. So this is Martin speaking before Dieter is responding to your second question, let me give you our views on the dividend and the consideration. First of all, in the past we have never given any guidance with regard to dividend throughout the year and we will not do that today either.

Now, with regards to the policy itself, you have seen in the comments this morning that the policy remains unchanged, our dividend policy is to pay a sustainable competitive for dividend, but I should stress that as we always said the dividend in January and February to following year, we take into consideration, not only the result of the prior year i.e., in the coming time of this year, but you would also look at fact such as solvency position, our medium term earnings outlook, our cash generation power, future goals expectations and obviously as well the macroeconomic factors in setting this dividend, and as well actually we have done that into past, we will do that in the following year and that is then going to drive the proposal we put up to the Board of Directors and to the – to our investors at the Analyst and Shareholder Meeting.

The movements, now let me just make more of a macroeconomic comment with regards to the currency development we have seen. What we have seen in the past month with regards to the strengthening of the Swiss Franc in our view, and by all means in any economic consideration is not sustainable. We have now a situation where the Swiss Franc is all the value pending on the currency, if there’s anything between 20 and 40, maybe even more percentage points which will lead if not corrected to a situation where the Swiss economy will substantially slow down. The respective currency flows will adjust to these economic changes, which will as well bring the currency then back to more of an equilibrium position, i.e. to fair value.

Now the challenge of such a movement is clearly the timing about it, because as we all know, the currency can undershoot from a fair value consideration and purchasing power parity for three, four, five years at the most and this obviously can also be the case with the Swiss Franc, it can still stiffen further. Having said that, the Swiss National Bank has made a clear point now that from hereon they would not anymore accept any sort of acceleration of the trend but rather see the reverse.

I do make this comment just to make as well a point that we are not making strategic decisions on a currency consideration only and the dividend is a part of it, while we look at those factors such as that I have mentioned before. With regards to the results of the first six months, we are very pleased to see the our cash generation power is more or less equal to the last year, and with that we feel comfortable in the outlook once we get to the point on the dividend discussion as well.

Dieter Wem

So Spence, good afternoon. So your second question regarding the underlying loss ratio, it was 63% in the second quarter. There is some seasonality in the underlying loss ratio, because although we are trying to show the big volatilities and the catastrophes and large losses, there is still some smaller seasonality left in the underling loss ratio, but on the other hand certainly the underwriting actions continue throughout the next quarter and also achieved rate increases of the last quarter has not yet ended.

Spencer Horgan – Deutsche Bank

Okay, thanks.

Operator

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

Andrew Ritchie – Autonomous

Hi, there. Just wanted to clarify Dieter your comments you made on the video on cash flow not – nothing you mentioned as well. You are basically saying as far as you are concerned, cash flow in dollars is more or less equal year-on-year in terms of where you expect to be by the end of the year, and I think the implication from the commentary Dieter was that you convert the cash flow from subsidiaries over the year into the currency that you needed for, and I am guessing – I am just trying to understand the timing of that, does that happen equally through the year. How many it equates through the year, are you trying to stay there or that we should think about the average Swiss franc rate, not this fall, Swiss franc rate as the kind of the chief consideration in terms of converting cash versus subsidiaries up to Swiss francs at the center?

Secondly, on FFP, I know you can’t give us a number as of today, can you give us any feel for sensitivities in terms of what happened with the market moves in the last week? Within that particularly interested in the live TV where the sensitivity to afford the 100 basis points interest rate now being positive, is that actually the case and at what point does it become negative again?

Martin Senn

Okay, and with that very difficult technical question. Let me start first with the cash flow. As this cash flow picture is made of mainly dividend payments from subsidiaries, so we don’t have a daily cash flow there in the end a number of bigger cash flows, therefore it’s not truly equally spread over the year. But at half year we put the match on six months and in generally on track with our own rolling 12-months forecast which we are always doing. So we are converting it when we receive it, so it’s probable fair to say if you use metrics exchange rates that is the best proxy I can give to you. I have given an in the video a short summary of we would see through the first half year was 50% dollar, 30% euro, 10% pounds and 5% Swiss franc and then a couple of other small currencies.

So on the Swiss Solvency Test, it’s hard to do this forecastic modeling on the back of an envelope, I think I had this debate with Ryan some quarters ago on this call. I would – best guess I can do is that the trends is little bit down over the last two weeks because Euro swap curves came down in particular at the long end. Some downward movement on the dollar curve actually hopefully has improved EV, because our dollar EV has the reverse currency – infiltrate exposure and our hedges we have put in place for the Euro stocks 50 have certainly helped to limit the loss in solvency ratio, so that on balance I guess a small movement down but it’s really a very detailed calculation, and who knows where all these numbers are on September 30th when we do the next upper calculation.

Andrew Ritchie – Autonomous

Sorry, on the life EV, the sensitivity has changed from the end of the year, full 100 basis points was negative, now it seems to be positive. I’m guessing it is positive up to the point?

Martin Senn

Yes, that is true. It is a very complex scenario. It’s not linear. As I said, the U.S. portfolio had always this positive sensitivity. The one with the big negative sensitivity was the German EV mainly and we have done quite some action to de-risking the situation on one hand buying swaps and on the other hand getting into a much deeper understanding of the exact nature of the liabilities when pale events would really happen in practice. So, we feel much more comfortable with our risk position in our German life portfolio.

Andrew Ritchie – Autonomous

Okay. Thank you.

Operator

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

Farooq Hanif – Morgan Stanley

Good afternoon. Just want to focus back on the underlying combined ratio and rating environment. Going to back to – you said about seasonality and could you give us a little bit more kind of direction on kind of how much the improvement was just kind of lower frequency, lower experience? How much was mixed because you had lots of high growths in some of the international markets and improving growth in Europe? And how much of it is kind of your pricing action?

Could you just give a little more guide to that and when you look at historically it’s going to possibly the seasonality in the underlying ratio? That’s question number one. And question number two is I mean the fact that you will actually now seeing a decent growth in the European business and putting in very good personal volumes basically I mean, is that basically reflection of the competitive environment now getting much better so your core markets, could you comment on that as well please?

Martin Senn

Okay. Thanks. Thanks very much. Let me start with the second question first. I think in particular in the German market, all pricing actions led to exactly high up premium volume which means that the customer that has no option to go somewhere else to renew at a cheaper price, that gives an indication that that’s the whole market has shown some hardening and in particular I think we saw the close to our direction in Germany and our distribution joint venture with Automobile Club. So this certainly a positive contributor in this picture in Germany and therefore the combined ratio also improved sales nicely.

On the general question of the underlying loss ratio, well, the mix change, the pricing actions that is all summarized under our underwriting actions. I think, Martin, you had shown to all of you as the three by three matrix how we are tackle each of the sub-portfolios and how we classify the existing customers into A, B, C and how we do specific actions on the class. I think it is very hard to say how is the individual affect building up, that would be an analysis for each of the sub-portfolios. We have net aggregated this action under this factor because our focus is to move the sub-portfolios from the red box to the green box and then really to say how it is on average rate that who created what, that is not at the moment our focus. The focus is to deliver an improved underwriting for sales.

Farooq Hanif – Morgan Stanley

I guess, I mean the reason for asking the question is that you emphasized seasonality a better seasonality in the number and I just wondered what implied effect that was because...

Martin Senn

It – well.

Farooq Hanif – Morgan Stanley

It was a little bit, but actually it means the rest of the year actually the number could be pretty good.

Martin Senn

No, no, I think the seasonality I only mentioned because it is always the best to compare the same quarters against each other. So, it is hard to compare third quarter against the first quarter, because one it’s winter, one is summer at least in the Northern hemisphere. And therefore I think you can compare Q2 with Q2 and that was more why I mentioned seasonality.

Farooq Hanif – Morgan Stanley

Okay. Thank you very much.

Operator

Your next question is from Mr. Andy Broadfield form Barclays Capital. Please go ahead sir.

Andy Broadfield – Barclays Capital

Hi, good afternoon. Two questions, the first a little bit more on the Group’s cash flow because I was just wondering how the internal reinsurance programs worked and the timing from those contracts I think significant, one with the U.S. and I think you also have a (inaudible) with the Irish entity on the P&C side. So, just a little bit about on the final cash flow whether that helps or hinders or influences the overall Swiss franc, dollar, Euro debate at all.

Second question just on the life reinsurance we’ve heard that one or two of the reinsurers have said that especially in U.K. life reinsurance has been pretty tight. It has become (inaudible) pressure and there is a number of primary guys reinsuring an awful lot of that mortality books. Just wondering where you are seeing that given that – I think 50% of your portfolio is now protection, which I guess a chuck of that will be mortality most of it if not all of it, just whether you’re seeing anything there and how that’s developing for you?

Martin Senn

Okay, Andy, first of all our cash flows – when we talk about cash flow for dividend are completely delinked from the reinsurance program in the sense that the insurance and reinsurance premiums are paid to us in a legal entity who is writing business. And the cash flow I’m talking about is the dividend sent from this legal entity, subsidiary to the center and is therefore really on a corporate level and not anymore in the insurance business as such. Therefore, I at the moment don’t see any link between our reinsurance program and our central cash pool.

Andy Broadfield – Barclays Capital

So, just on the – Dieter, there have been no – the cash stream from, for example, the U.S. into the Zurich entity, would that remain in dollars during that period?

Martin Senn

If it’s a reinsurance coming from the average goes to Zurich Insurance Company as a liability, of course, being invested in dollar investment and I think matching this reinsurance liabilities and that I consider still as insurance business. What we measure in the cash flow is really – really run by the treasury department, that means we talk about dividends, intercompany loans, external loans, whatsoever disposals, acquisitions. That is what – how we manage the free cash flow of the group. It has nothing to do with the operational cash flows, the operation cash flows are much bigger number.

Andy Broadfield – Barclays Capital

Okay, thank you.

Martin Senn

Yeah. And now the U.K. life insurance correction, we are not reinsuring mortality, yes, I have heard in the market that there is some discussions that some of the reinsurance offers are offering such low mortality assumptions as they go below your own best estimates than you could consider whether you want to arbitrage your own assumptions setting. But we have fairly not taking any decision like this.

Andy Broadfield – Barclays Capital

Okay. So as always it was.

Martin Senn

Yeah.

Andy Broadfield – Barclays Capital

Thanks.

Operator

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

Michael Huttner – JPMorgan

Thanks a lot. And I had a couple of questions. First one is why you are leaving? I ask myself a question because I am roughly the same age as you not a bit younger than not much, not thinking big salary, nice company, not obviously well liked, so I couldn’t quite get in then we thought well, which – what company is missing the CEO would like to go to, I can’t think of a single one.

And reason I think it’s relevant, it’s the timing is around resigning just before the end of June kind of implies you – you are not parting to the dividend decision, but you kind of and you might sort of fresh offers. And the second is what stage in the finance business would you have to look to goodwill impairment, I see volumes are down quite a bit and then lastly maybe you could just touch Deutsche Bank deal, was any special payment or change in conditions. Thanks a lot.

Martin Senn

Yeah, thank you very much, Michael. So, to your question as why I am leaving and to dividend institution, I can only tell you I am still a shareholder and I have moved the stock to my personal income fund. So I’m counting that they continue with this. So it’s always a question, what you expect from life and what are you going to do? I have 25 years completed with Zurich this month, and somehow I felt that is a good decision to look at the world from the eyes and the angle of another corporation. So it has really nothing to do with Zurich directly.

I just – I’m still curious and young enough, as you said Michael to really be a bit more adventurous. And talking about our Spanish business, actually the goodwill is certainly a point we have always to look at. We have our standard processes to validate the quality of the goodwill numbers and the goodwill is not driven by the volume of business we write, the goodwill is driven and justified by the cash flows or future earnings, and I think that is best expressed in the new business value, and when you look how the new business value for our Spanish business has developed, it is actually holding up quite nicely. Therefore our efforts to move more to higher margin risk business to keep the generation of new business value in line with original business.

Dieter Wem

The Roger Bank deal is – yeah, well, I think that is we announced already the extension of the MOU actually much earlier this year. So, we completed the documentation with unfinished terms compared to the MOU. We are not disclosing the financial details because it isn’t commercial agreement around commission scheduled and this is commercially sensitive and therefore we would not like to announce this to our competitors.

Michael Huttner – JPMorgan

Okay.

Martin Senn

And may if I clearly can step in, good afternoon, Michael. Following up from your question regarding Dieter’s departure, and your question being party to the dividend decision, I assume that I am going to be part of the dividend decision unless I become also more adventurous in the course of the next six months, which I don’t think will be the case. The point I want to make really is to all of you that the financial discipline and the operational excellence Zurich has excelled and many in them in the past is not subject to one single colleague or to one single executive in the company.

This is very much the Zurich way. This is very much embedded in our way we are thinking and how we are acting, it is in our genes. So I just wanted to give you that comfort that while we will miss Dieter terribly, it is not going to change the way we are looking at things. It’s not going to change to way our discipline is being executed. I am not planning to have now a dedication for Dieter as Dieter is with us throughout the rest of the year and supporting as well very effective and proper handover to today’s success, but I want to say thank you to Zurich for their great corporation we have so far and we continue to have that on re-fix up a new challenge wherever that is.

Michael Huttner – JPMorgan

Got you. Thank you.

Operator

The next question is from Mr. (inaudible) from Royal Bank of Canada. Please go ahead, sir.

Unidentified Analyst

Good afternoon, I have two questions please. First one, during the recorded presentation, you went over the changes you made to your reinsurance program, and you concluded by saying that you eventually will be seeing a bit more volatility to earnings, I don’t think there is a tremendous change, but have you quantified the additional volatility. Could you provide some more color on your comment please? And the second question has to do with farmers, so in orders that the surplus issue is now down to 38% and the exchange that’s still within your range of 30% to 40%, which is in your target, can you better help us understand this target and how should we read it and when this make sense to get a bit more concerned about the need to and the exchanges surplus base? Thank you.

Martin Senn

Yeah, good afternoon, (inaudible). The reinsurance program volatility was referring to the fact that we have taken up and particularly on the international program a little bit more net protection and we have also changed some of the top cover, so from an expected value perspective, we actually see a small improvement coming out of all the program changes; however, with field events that would create a bit more volatility, but none of these changes are dramatic numbers.

So, mostly they are below the spend activity of your specific spreadsheets around it. I think the farmers surplus ratio 38% is still at the upper end of our range from 32% to 40%. Therefore I mentioned this target range is exactly to take away concerns about the surplus ratio and we are also expecting that the company continues to build surplus.

I think I have to remind maybe everybody that the second quarter 2011 with the hailstorms and Tornadoes in the U.S. was the worst quarter since the Norwich earthquake that was substantially worse than the Katrina or other big hurricanes you all remember.

Unidentified Analyst

Thank you.

Operator

Our next question is from Mr. Stefan Schurmann from Bank Vontobel. Please go ahead, sir.

Stefan Schurmann – Bank Vontobel

Yes, good afternoon. I have two questions. The first one is on reserves release maybe you could have provided us a bit more color on this happening. You mentioned that in 600 multiple there was something maybe U.S. liability, maybe can you give us some more detail in terms of claims frequency or claims utilization where basically the release has happened.

And the second question just a small one on farmers fee, I reckon that given the rate in profit was only a small 4 million in Q2 compared to maybe a 40 last year and I think here basically the tornadoes had no impact, can you just explain why that result was rather modest?

Martin Senn

Okay, so good afternoon, Stefan. Well, the reserve releases in the second quarter were very much in line with – for the half year of 2010 anyway, but also I think we were pretty stable compared to the first quarter. We have only mentioned the two biggest contributors as single numbers, but it is actually quite a long list of pluses and minuses as is every quarter. So the two big plus numbers was Swiss motor book and some lines of the U.S. liability business. Workers comp was pretty neutral in the second quarter, and maybe I can refer here also to all the actions with this last year where some of you were a bit surprised that we took reserve strengthening for our workers comp business, because we saw stronger claims inflation there.

I think we were ahead of the curve with the industry’s leading to some of our previous announcement in the second quarter, you could see that other people have now recognize the same and our 9% rate increase in worker’s comp is also a good evidence that more people than just us are recognizing the claim inflation in worker’s comp, and therefore I am quite pleased that the two things, reserve management and pricing recognition works very much hand-in-hand, and I think that is really a good development. Therefore we feel actually what the growth about our growth levels in general. So now how much we – well that is a very simple study.

We had 95 million hits from our 12% share in the tornado and hail storms. So the normal profit of farmers, if you look at Q1 was roughly 50 million. So 90 million hits you would assume a minus 40 was out, but we got a little bit more than 40 million prior year reserve releases and the reserve releases throughout in absolute terms is strong because they came out of 35% total share we had a year ago and now they are hitting the accidental losses of 12% total share and that was also been in the 4 million net number for the quarter.

Stefan Schurmann – Bank Vontobel

Okay, that’s very good. Thank you very much.

Operator

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

Vinit Malhotra – Goldman Sachs

Hi, good afternoon. So we have been trying to watch and observe on underlying combined ratio, which we’ve finally seen an important that’s a great news and I understand it’s because of the pricing actions and a lot of re-underwriting. What I would like to hear from you is, your tone was much more positive on the volumes and on the retention side in the second quarter versus first quarter. So it does I mean yes when you increase prices and people will tend to try to look elsewhere, but if they can’t just stick with you but is that what is happening or is there something else or is a just a captive copper deals in global corporate. So retentions in P&C the first question and basically that – thank you.

Martin Senn

Yeah, Vinit, good afternoon. Yes, the tone was small positive, because we’re at (inaudible) flat now at the half year where we have minus 2% in the first quarter. We are flat at our general insurance business where we had a small reduction in the first quarter, and also our APE is in the positive for the half year than it was for the first quarter. So therefore, I think it’s really important to highlight that also in volume terms, all three segments are showing a better picture.

And then, I commented on this great change (inaudible) in the video on all the specific retention moments and the subsections with which I don’t want to repeat here, but it’s true in general across the board retention is slightly up, but also new business. A driver in global comp was in these sets, we have work on some more captive business. Therefore, when you would neutralize for the captive business, our global corporate business is not 5% up, but is only a little bit up in total volume.

Vinit Malhotra – Goldman Sachs

And just following up, you also mentioned a 9% increase in workers’ comp in 2Q, and even when I read the review, I see that you’re still seeing that loss trends are pretty bad in worker’s comp. Is that – is the 9% just offsetting that or is it real rate increase you’re achieving there?

Martin Senn

Well, 9% is a very – it’s certainly an improvement because we are bookings the lots ratio based on total fees on the operate level. So, whatever you guess an additional rate will improve your loss ratio going forward. So, still I think that’s the loss ratios in work comp are not yet moving in right direction, but they are not yet there and there will be more fights for rates needed going forward.

Vinit Malhotra – Goldman Sachs

All right. Thanks very much.

Martin Senn

We have overall a great combined ratio already or loss ratio. So, it should add to further improve.

Vinit Malhotra – Goldman Sachs

Okay. Thanks very much.

Operator

The next question is from (inaudible) from KBW. Please go ahead, sir.

Unidentified Analyst

Yes, hello, good afternoon. I have one question relating to you stake in New China Life. You released a press release some time ago saying that your 20% stake in the company has been revalued to $1 billion, which would therefore imply a valuation which is in line with what we recently have been hearing in the press talking about the potential IPO more along the lines of $3 billion to perhaps $3.5 billion. So, my question really relates to this, do you believe that you stake and your remaining stake of 15% in New China Life is now potentially over-valued and at what point may you choose to write this down?

And the second question is would you just be able to give us some of color, some of your interpretation on – of how you see the pricing, the rate development in North American P&Cs, so not in the short-term which we have seen in the presentation more your reading of the rating environment is going to go medium term? Thank you.

Martin Senn

Okay, good afternoon, well, we just sold 5 percentage points of our 20% stake in New China Life, it crystallites realized loss of – realized gain, sorry I have also very following your language, realized gain of $441 million, which is slightly more than the book value we have in – for the business in our book that shows you that our valuation is careful and really satisfying fair value calculation. I am reading the same newspapers as you are doing and therefore I don’t think that I need to comment on newspaper articles because that is not our business to do this if the company decides something to do in China then they should do this.

So, but we are not concerned – I am not concerned about the valuation of our stake in our book, to put this very clearly. The pricing outlook in the U.S., well I think we have seen that it starts to move in the right direction if I can only look at the recent history, but we had for North America commercial business, 1% loss in the fourth quarter, 2% in the first quarter 2011, now we are at 3% to 4% in the second quarter 2011, so directionally I think it is feeling good. Well, it continued like this I think it’s – I hope the industry keeps its discipline here and that we then continue also this we will certainly keeping our discipline on the pricing but how is the pricing will look like next year and two years. I think I don’t know more than you know.

Unidentified Analyst

Thank you.

Operator

The next question is from Ben Cohen from Collins Stewart. Please go ahead, sir.

Ben Cohen – Collins Stewart

Hi, good afternoon. I wanted to ask just sort of a general question, in terms of your outlook as we sort of see equity markets and bond markets starting to reflect maybe sort of slower growth in the U.S. and in Europe. I was just wondering if you could talk through how you see your different divisions, why you see maybe some vulnerabilities both in terms of sort of volume and margin and also where do you think the resilience would come from in your portfolio? Thank you.

Martin Senn

That is a very good question, Ben. And I think actually when we start with the U.S. public we have now touched on several times. I think we are living the commercial business as well as farmers and they put the poor economic environments in 2007 and I think we are fully addressed it to broke and live in this environment. So, I wouldn’t actually see any bigger changes coming even if the growth outlook is a little bit would use further at the moment.

I think in the end we have not seen a huge recovery in the last three years on construction business, nor on the automotive business which is selling cars nor that you see a lot of increases in employment over the three years. So, therefore I think it is – we got pretty much use to it. You hope I think you all recognized that our business operating profit for European general insurance is up 60%, mainly driven by underwriting and pricing action and this also we’re making good profits in market where the economy is already in the difficult situation.

So, therefore, I am not expecting big movements. I think it’s also advantage step that in the general insurance is a very defensive industry and not swinging too fast up and down with the economic environment. So, now let’s come to the life business. I think our life business is becoming more and more resilience, we are dealing at the moment already with the downturn in markets like Ireland and Spain and had placed it by really great growth in more emerging markets.

I think that our life new business value has already 26% coming from Latin America and mainly Middle East Asia is already dividends for the resilience development plus I think we have developed the Corporate Life & Pension business that’s really a great niche, which is matching the trend of our capabilities of Zurich as an international player and a strong player on the P&C side in this field. So, that certainly gets more and more upside even when the economy is not proving to be this good and that will be I think supported by the strategic acquisitions being done and I would expect next year a substantially bigger amount of new business start to coming from emerging markets.

Ben Cohen – Collins Stewart

Okay. Thank you very much.

Operator

Your next question is from Mr. Michael Klien from Nomura. Please go ahead, sir.

Michael Klien – Nomura

Yes, good afternoon. Most of my questions have been answered. So, just one question on the North American commercial business and all the way the pricing environment is improving. You have made some comments in terms of the outlook and what I would be interested in is, you mentioned that you have re-underwritten some of the business, so it is underwriting actions and have had some impact in terms of the top line, in terms of retention, can you give us a little bit more details which lines of business you mentioned is specialty market and when you think it is going to be finished?

Martin Senn

Well. I think that’s the re-underwriting actions will continue still for a number of quarters, so at least for one program, you need to do 12 months to hit all the news at least once. But certainly during these re-underwriting programs we have new ideas we learned new things so that will be enough stuff to do also in year two and thereafter. I think we have exited some unprofitable books in the specialty area, which were also small for us and therefore we really want to focus on more relevant portfolios and also in commercial market, it’s not always attraction of unprofitability from an underwriting perspective also where yourself inefficient because the portfolio as such is too small and that is part of the re-underwriting.

On the other hand we move also through selective gross in mid market commercial and energy casualty business, which adds very well to our global energy business and where we have not enough exposure on the casualty side that would also balance a bit our property exposure sale.

So that is the best I can explain it, otherwise I think you should pay a visit to our U.S. organization and they could show you how our pricing and portfolio management tool works that is much easier to see it in action than going for a long list of theoretical explanation.

Michael Klien – Nomura

Okay. Thank you.

Operator

The next question is from Mr. Robert Heine from JPMorgan. Please go ahead sir.

Robert Heine – JPMorgan

Hi, everyone. I have asked many questions in the past, so I am going to use my carry forward question and I asked for if possible. How much of the $4.4 billion assuming is the cash flow the same as last year, it’s actually been received by last year. Secondly, in terms of the dividend you mentioned that competitive dividend now you are yielding 11% versus about 7% for this sector. So if that’s the situation at the year end, does that become a factor in actually determining competitive dividend?

So would you actually take that into account? Thirdly, on potential reallocation, does the Swiss Franc at these levels make you think about relocating head office to let’s say the US, and the last question is like everyone else we are very sad to see Dieter and I would like to thank him for all the efforts he has made on our part, but just to say where are we currently with our current CFO, I mean where are we with hiring a new CFO and is Dieter getting involved in this hiring process to make sure that another good one is hired? Thanks.

Martin Senn

Thank you very much, Rob, and good afternoon to you. With regard to the divided question, it’s very difficult Robert to really give you a firm response and possibly as well a satisfactory response, because again you will have to go through these evaluation at the end of the year considering all factors that we have seen with regard to the macroeconomic situation, our earnings power, our solvency position and as well as the comparison obviously where the market altogether stands.

With regards to the cost of the head office, cost and cost management for us is not a project for business and operational principle. With the $500 million efficiency program you have announced at the last investor’s day, obviously currency movements are always a consideration, but it should not be the only driver.

At this point, there is no plan to move the head office to the US to be very specific and concrete. I will tell that we would execute such a consideration, but if we have a situation where we are looking at opportunities because of currency alignments to move operations and this critical mass for a month. They encourage you I see to another and we really believe that is sustainable and practical we would definitely consider any such move. And that has been done in the past and we will continue to do so if there is a merit.

On the basis of today’s currency environment, i.e. the Swiss franc strength standalone that is somewhat risky because as mentioned the current over valuation of the Swiss franc we do not consider sustainable and over time there will be I think more of a normalization and moves back to the mean.

Your last question with regards to the succession process for Dieter, yes Dieter is involved clearly. He will remain involved and we will do everything possible to not only get as good as a CFO, while it’s fast say to got a better one he has have to be addition outstanding CFO possible to everything possible to get one to bring to the same level if he is not there yet.

Robert Heine – JPMorgan

There was another question the 4.4 billion, how much of that’s actually come to the assuming as the same as the last year, how much of that already at...?

Martin Senn

Yeah, what – we have back very well on track and I think I am not going to the details because then you’re automatically double the number and that would be misleading.

Robert Heine – JPMorgan

No, no. I am just saying is it – I am just trying to use an average rate for the 4.4 billion or 50% income, now 50% second-half of that part of saying could you give me an idea?

Martin Senn

Well. I think as you also know from the public list companies the second quarter is certainly more of a dividend quarter than the other quarters and that is in the end to normal process in corporate life, you close your books, you declare your annual result, you have your shareholder meeting and you pay your dividend, that is the subsidiaries, in the end not really different than with a big company.

Robert Heine – JPMorgan

Okay. Thanks a lot.

Martin Senn

Okay. I think we have time for one more question please.

Operator

Last question for today is from Mr. (inaudible) from Cheuvreux. Please go ahead sir.

Unidentified Analyst

Yes, good afternoon (inaudible). Just few questions left from my side. First one is on deferring the forex effect on the book value. I am bit puzzled because I supposed to see a positive effect on evaluation is there on currency valuation reserve in your book value, year-to-date while I noted a negative factor despite the weakening of U.S. dollar compared to the euro and Swiss francs and also a bit versus U.K. pound.

Second question is on dividend again if I may. Do you think that your decision could be just on your economic position or maybe some payout ratio because you paid your last year pay-out ratio was already very high, it was 280%. It could be possible to see a further increase or you have a sort of cap for your pay-out ratio just to understand what, when you will be involved in the dividend decision, how you will deal with this question. And that’s all from my side, thank you.

Martin Senn

Maybe (inaudible) can answer you. Maybe I’ll take the second question first then Dieter comes back to the first one. In the past, we have made a point that our dividend consideration is not subject to any payout consideration nor to any dividend yield consideration. As it stands, that has not changed. But again we are – it’s way too early, Tanazia to talk about the dividend with just about half way through the year, there is no merit now in trying to finalize this discursion and we will obviously come back than next year on the proposal, and rest assured we always look at the investor considerations very – taken very serious and that in any way we can’t generate value to shareholders.

Unidentified Analyst

Thank you.

Dieter Wem

Yeah, I think, it’s – we have only a small cumulative consolation adjustment, because that is still the impact of many currency movements and that is not a big number in the second quarter actually, and in the first quarter the story was a bit more complex, because we paid a part of our dividend out of the CTA, because as we redeem paid in capital because it was a tax-free dividend as you all remember, in accounting terms the dividends got split between the dividend account and the CTA account, and I think on we have on page 23 in our analyst presentation you can actually see the split effect of this. And, so then maybe I should also to add to Martin’s comments, for the half year, our earnings per share is 12 francs more or less unchanged to last year’s number, so let’s look where we end up at the end of the year.

Unidentified Analyst

Okay. Thank you very much.

Martin Senn

Thank you very much everybody for participating at today’s call for our half year 2011 Q&A, and as we said, we are very pleased with our strong second quarter results, which we believe demonstrate the underlying strength of our business. We continue to have a strong capital base, we believe we have a very strong solvency position, and so in today’s market environment, this is clearly a very strong asset, as we have truly volatility into market, which has not been seen by any – from us before. I can assure you that me and my colleagues will remain focus on what we can control. We will continue to execute and our strategy towards achieving the delivery of the announced product at our last Investors Day.

And with that, we all look forward to see you again late this at our nine months results. I hope, there are going to be many interactions with you over the phone or personally before that, and I want to thank you again and also in the name of Dieter, we both wish you a great day and good luck in the markets. Thank you very much.

Operator

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call facility and thank you for participating in the conference. You may now disconnect your lines. Good bye.

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