Zurich delivers strong Q3 net income

Select financial highlights – third quarter (Q3) and first nine months (9M) of 2011
(For a more comprehensive set of financial highlights covering the first nine months ended September 30, see page 7)

Zurich, November 10, 2011 - Zurich Financial Services Group (Zurich) today reported a business operating profit (BOP) of USD 3.3 billion and net income after tax¹ (NIAT) of USD 3.2 billion for the nine months ended September 30, 2011.

"This result again demonstrates the success of our strategy. Our focus on profitability and market risk mitigation has enabled us to deliver a strong result," said Chief Executive Officer Martin Senn.

"I am also pleased with the performance of our Group investments, which delivered a net return of 3.9% for the first nine months."

"In emerging markets, we closed two major transactions this year. Our long-term alliance with Banco Santander is now finalized in all the five Latin American markets of Brazil, Mexico, Chile, Argentina and Uruguay, allowing us to extend our life and general insurance distribution capabilities and become one of the top four insurers in this fast growing region. In Malaysia, we completed the acquisition of Malaysia Assurance Alliance Berhad (MAAB) and further enhanced our presence as a full service insurance provider," Mr. Senn said.

The Group remains focused on delivering its targets. In General Insurance, underwriting discipline contributed to an improvement in the underlying loss ratio while maintaining the same level of gross written premiums. Global Life continues to make progress in diversifying into higher growth markets and Farmers maintains solid margins.

Results were impacted by significant weather events in the third quarter, particularly Hurricane Irene in the United States and hailstorms in Switzerland and Germany. Already, the half year results were impacted by a number of significant events, including the earthquakes in Japan and New Zealand as well as weather events in Australia and the United States.

Zurich's capital position and solvency remain strong, and the capitalization ratio under the Swiss Solvency Test (SST), as filed with the regulator for the half year ended June 30, 2011, was 225%. While Zurich does not run full SST calculations on a quarterly basis, the Group remains confident that the SST ratio was above 200% at the end of the third quarter. Shareholders' equity stands at USD 32 billion, which is the same level as year end 2010 and USD 801 million higher than at end of June 2011, and includes dividends of USD 2.7 billion paid out for 2010.

Segment performance (in the first nine months ended September 30)⁵

General Insurance

Business operating profit from General Insurance was USD 1.7 billion, a decrease of 12%. The sustained focus on margin enhancements has continued to improve the underlying loss ratio, but these improvements were more than offset by the frequency and overall severity of catastrophes and significant weather-related loss events during the first nine months of 2011, making this year the worst catastrophe year since 2005, when Hurricane Katrina devastated New Orleans. In addition, the result was further impacted by changes in claims and premium reserving assumptions for some lines of business in Germany. Other technical expenses decreased as continued focus on expenses maintained a balance between investments in emerging markets and expense management actions. Gross written premiums and policy fees increased by 6% in U.S. dollar terms but remained flat on a local currency basis. In line with the strategy to improve margins, average rates increased by more than 3% and despite these increases customer retention levels have improved slightly compared with the same period of 2010. The Global Corporate business and International Markets were the primary drivers of growth, while we continued targeted investments in Asia-Pacific, Latin America and the Middle East. North America Commercial maintained its focus on re-underwriting, successfully protecting margins. European volumes continued to decline on a local currency basis, mainly due to underwriting actions implemented to improve profitability but also from the depressed levels of economic activity in certain European markets.

Global Life

New business value after tax⁶ reached USD 729 million, an increase of 24% in U.S. dollar terms or 14% on a local currency basis, following a methodology refinement for the calculation of new business value for the corporate protection business, which is more reflective of the underlying economics. Excluding this refinement, new business value after tax increased by 5% in U.S. dollar terms and was broadly flat on a local currency basis. Global Life continues to progress against its strategic objective of diversifying into the higher growth markets of Latin America, Asia-Pacific and the Middle East, approaching its stated 2013 target of 30% of total new business value being generated in these regions. The new business annual premium equivalent (APE) and new business value (NBV) generated by growth in these regions mitigated challenging market conditions in individual life business in Europe: in Spain and Ireland pricing behavior in the market on certain lines of business was on terms considered uneconomic by the Group and the single premium market in Germany has declined compared with the same period in the previous year. Selective growth and new product innovation was sustained in Corporate Life & Pensions. Net policyholder flows⁷ remained positive at USD 1.6 billion despite the lower deposit and premium volumes in Ireland, Spain and Germany. Business operating profit, however, decreased by 8% in U.S. dollar terms and by 15% on a local currency basis, as increases in fee income and margins from protection business were more than offset by financial market related impacts and increased costs related to investments in the global operations strategy.

Farmers

Management fees and other related revenues from Farmers Management Services (FMS) decreased by 1% reflecting the run-off of the 21st Century agency auto book of business in the Farmers Exchanges, which are managed but not owned by Farmers Group Inc., a wholly owned subsidiary of Zurich. This was partially offset by continued increases in gross earned premiums in the Farmers Exchanges from the 21st Century direct as well as small business solutions and specialty businesses. As a result, the managed gross earned premium margin at Farmers Management Services decreased by 0.1 points to 7.3%. Gross written premiums in the Farmers Exchanges increased by USD 43 million to USD 13.9 billion. This was driven by premium growth in nearly all active lines of business and partially offset by the run-off of the 21st Century agency auto book of business. Excluding the effect of this run-off, gross written premiums increased by 1% compared with the same period of 2010. In Farmers Re, gross written premiums and policy fees decreased by 39% to USD 2.3 billion due to the change in the participation level of the quota share reinsurance treaty, which in combination with a significant increase in weather-related losses also resulted in a decreased business operating profit of USD 76 million. Overall, Farmers reported a business operating profit of USD 1.1 billion.

Other Operating Businesses: Other Operating Businesses, predominantly consisting of the Group's headquarter expenses and external financing activities, reported a business operating loss of USD 588 million, up from USD 573 million for the first nine months of 2010. This was impacted by the effects of a strong Swiss franc and positive one-off items in 2010.

Non-Core Businesses: Non-core businesses, which comprise primarily run-off portfolios that are managed with the intention to reduce risk while maximizing profit opportunities, reported a business operating profit of USD 13 million compared with a loss of USD 256 million for the same period in 2010. This change was driven primarily by lower banking loan loss provisions and the positive financial market impact on Centre's insurance portfolio.

Group investments

The net investment result on Group investments, which includes investment income, realized gains and losses and impairments, contributed USD 7.6 billion to the Group's total revenues for the first nine months of 2011, a net return of 3.9% (not annualized). Net capital gains on investments and impairments amounted to USD 2.2 billion. These included USD 1.5 billion of asset revaluations and USD 1.1 billion of gains realization arising from hedging the Group's economic exposures, partially offset by impairments of USD 359 million. Net unrealized gains reported in shareholders' equity for the nine months increased by USD 983 million driven by falling rates particularly in the third quarter. Total return on Group investments, which includes investment income, realized gains and losses and impairments as well as changes in unrealized gains and losses reported in shareholders' equity, was 4.4% (not annualized). The Group continues its disciplined approach and closely monitors its investment in eurozone peripheral government debt to ensure risk is well-balanced and diversified.

Note to editors:

A pre-recorded video presentation to accompany the analysts and investors slide presentation will be available from 6.45 hrs CET on our website www.zurich.com.

In addition, there will be a conference Q&A session for analysts and investors with the CEO, Martin Senn, and the CFO, Pierre Wauthier, starting at 13.00 hrs CET. Media may listen in. Please dial-in to register approximately 3 to 5 minutes prior to the start of the Q&A session.

• Europe +41 (0)91 610 56 00
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• USA +1 (1) 866 291 41 66

Supplemental financial information is available on our website www.zurich.com. Please click on the «Q3 results reporting November 10, 2011» link on the bottom left corner of our homepage.

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