"The Group has made a strong start to the year and remained on track with its strategy and financial plans in the first quarter. During the quarter, the Group has taken full advantage of the hard pricing conditions in the commercial business to deliver strong growth and further improvements in the underlying underwriting performance of the P&C business," said Group Chief Financial Officer George Quinn.
He added: "In Life, the Group's focus on growing higher-margin products, rather than simply increasing volume, has continued to support the performance of the business, while the Farmers Exchanges returned to growth even before the addition of the MetLife P&C business at the start of the second quarter. These trends, together with our very strong balance sheet, allow us to look forward to the remainder of the year with great confidence."
In the first quarter, Zurich's continued focus on using customer insights to enhance the customer experience has driven further increases in satisfaction (as measured by Net Promoter Scores) in most key markets. The number of retail customers increased by approximately 300,000, with rising levels of customer satisfaction and demand from the partnership distribution channel supporting this growth.
Property & Casualty
Gross written premiums in Property & Casualty (P&C) for the first three months rose 9% compared with the previous year on a like-for-like basis, adjusting for currency movements, acquisitions and disposals. They rose 14% in U.S. dollar terms, with growth amplified by favorable currency movements.
Growth was supported by higher premium rates, which were above the level in the prior-year period in all regions and driven by commercial insurance. The Group's leading North American crop insurance business contributed about 3 percentage points to growth as a result of higher prices for agricultural commodities.
In Europe, Middle East and Africa (EMEA), gross written premiums increased 5% on a like-for-like basis. Growth was driven by commercial insurance, most notably in Germany, Switzerland and the UK. Premium rates increased by 11% in commercial insurance compared with 5% in the prior-year period. Retail insurance gross written premiums were up modestly year-on-year, driven by improved new business and stable retention and premium rates.
North America grew 16% on a like-for-like basis compared with the previous year, with crop insurance contributing just over half of the growth. Rate increases of 14% remained in double-digits for the fifth consecutive quarter.
In Asia Pacific, gross written premiums declined 1% on a like-for-like basis compared with the previous year. Lower sales in travel insurance due to COVID-19 restrictions were only partially offset by growth in Japan and Malaysia. In Latin America, gross written premiums increased 5% on a like-for-like basis, benefiting from growth in commercial insurance and Zurich Santander.
The first quarter saw a relatively elevated level of natural catastrophe and weather-related claims, mainly driven by winter storm Uri in the U.S. Assuming normal levels of natural catastrophe activity for the remainder of the year, this is expected to add around one percentage point to the usual level of natural catastrophe losses in the combined ratio for the full year.
In the first quarter, Life new business annual premium equivalent (APE) decreased 4% on a like-for-like basis, adjusting for currency movements, acquisition and disposals. The decline reflects the lower sales in corporate life and pensions and annuity products, while unit-linked business showed strong growth momentum.
In EMEA, APE sales decreased by 11% on a like-for-like basis, compared with the same period in 2020. This was driven by the reduction in corporate pensions business in Switzerland due to the COVID-19-related economic slowdown and competitive market conditions, as well as by lower sales of traditional life products in Germany. These factors more than offset growth in Ireland and Spain.
In North America, APE sales increased 4% on a like-for-like basis, excluding the group life business which was sold in the prior year. In Asia Pacific, lower sales in Australia and Japan led to a decline of 9% on a like-for-like basis. The decline in Australia was due to repricing actions to improve margins.
APE sales in Latin America increased 15% on a like-for-like basis, reflecting higher sales volumes of individual protection and unit-linked business at Zurich Santander. These were partially offset by the non-renewal of a large corporate life and protection account in Chile.
The new business margin increased by 8.1 percentage points to an attractive 31.8% as reported, or 31.7% on a like-for-like basis. New business value (NBV) increased by 21% on a like-for-like basis, driven by the more favorable sales mix in EMEA and Asia Pacific and higher sales volumes in Latin America. On a reported basis, NBV increased by 23%.
As indicated at the time of the full-year results, the continuing COVID-19 pandemic is expected to have an adverse impact on mortality in 2021. This is due to a number of key countries in EMEA and Latin America, as well as the United States, experiencing elevated mortality over the course of the first quarter.
The Farmers Exchanges, which are owned by their policyholders, reported an increase of 4% in gross written premiums in the first quarter of the year. Growth was driven by the continued improvement in new business volumes and USD 130 million of premiums relating to higher volumes of commercial rideshare business. Gross earned premiums, which lag written premiums, declined in the first quarter due to the impact of COVID-19 on written premiums in 2020, with a return to growth expected during the remainder of the year.
The Farmers Exchanges surplus ratio remained at a strong level of 42.2%.
Farmers Management Services (FMS) management fees and other related revenues were in-line with the development of gross earned premiums at the Farmers Exchanges, which are expected to return to growth over the remainder of the year.
Farmers Life new business APE sales decreased 4% compared with the prior year, which benefited from a one-off sales promotion campaign run in the first quarter of 2020. New business value increased 16%, mainly driven by lower interest rates and lower operating expenses.
As of March 31, 2021, Zurich's Swiss Solvency Test (SST) ratio is estimated at 201% and remains well in excess of the Group's 160% target level. The increase of 19 percentage points over the first quarter was driven by favorable market conditions and the successful placement of USD 1.75 billion of subordinated debt. The acquisition of the MetLife P&C business and the early redemption of a hybrid debt instrument partially offset the increase.