Dear Shareholders, Customers and Employees

Following the global financial crisis of the last two years, it is encouraging to note the insurance industry worldwide is starting to show signs of recovery, with emerging commodity-rich countries such as South Africa in a better position than most to lead the way out of the recent recession.

Whilst there is a more positive economic outlook, customers are becoming more sophisticated in their buying behaviours. As a result, the competition for market share continues and this, combined with escalating claims trends and increasing legislative and regulatory requirements, has kept pressure firmly on insurers for the past 12 months.

For our parent company, Zurich Financial Services Limited, the focus has been on protecting underlying profitability even at the expense of overall growth. With a new General Insurance strategy developed in the last quarter of 2010, the outlook is very promising and the move to place Zurich South Africa into the Middle East and Africa region means there will be significant benefits for our local organisation in 2011 and beyond.

Moving closer to home, we have been on our own journey during 2010, having successfully reshaped our entire business during the course of the year. Whilst 2010 was a tough and challenging period for our employees, customers, brokers and shareholders alike, our financial results confirm we are moving in the right direction, creating a strong platform for profitable growth and taking a step closer to realising our aspiration of becoming the leading empowered insurer in our chosen markets.

Our Combined Ratio, the key indicator of performance for any insurance company, shows significant improvement from the prior year and our underwriting result reflects a healthy profit of R95 million, in comparison with our performance in 2009 where we posted a loss of R191 million. The General Insurance result, which includes attributable investment income, increased to R190 million from an R85 million loss in 2009. Our financial position and cash flows remain sound, with the international solvency ratio, at 51.6%, remaining within the target range as set by the Board. All year-on-year comparisons are on a normalised basis for 2009.

Whilst our gross premium declined by 14%, this was predominantly as a result of deliberate action taken to cancel underperforming books of business in order to protect profitability. We will continue to take action in this area, where required, in 2011.

To achieve a turnaround of this nature is a significant achievement and we have come a long way in 2010 – but we recognise this is only the start of the journey – to quote the media “the sleeping giant (Zurich) has awakened”. Now we must demonstrate the hunger, tenacity and focus in the marketplace that will enable us to build on these results and continue to deliver sustainable profitable growth.

In 2011 we are looking to take the organisation to a new level with resolute focus around the four key areas that underpin our strategy – enhancing customer centricity, delivering profitable growth, growing our people and embedding operational excellence. We will identify new and existing opportunities to seize market share and reposition ourselves strategically.

Our multisegment business strategy places a clear focus on identifying both customer and market opportunities that will support the organisation’s growth aspirations. In essence, we will focus on our existing markets and on new areas in which we can build our footprint and become a top-tier player. We will use our expertise and insight in these areas to create an indepth understanding of our customers’ risks, translating this knowledge into delivery of tailored propositions and solutions that meet their current and future needs. With our new business model in place, our visibility and intensity of market focus is vastly increased. From risk selection and pricing, through to the products we provide and the customer service we deliver – all of these components combine to bring the power of Zurich to the market, providing a long-term commitment to our broker partners and customers.

In December 2010 we announced our strategic partnership with Aquarius Underwriting Managers who brought their significant book of high net worth business along with other niche domestic and commercial products to the Company. With the wealth of knowledge and experience in the insurance sector that the two companies bring, we are confident the partnership will present exciting growth opportunities in 2011.

In addition, we have confirmed our strategic alliance with Standard Bank South Africa. This alliance will enable the bank to provide a range of new insurance solutions to commercial business customers. Standard Bank has a long-standing market reputation and we are delighted to be working alongside them. With their customer relationship management experience and broad distribution coverage, combined with our underwriting and reinsurance expertise we will be able to deliver solutions that meet customer needs, both now and in the future.

Our number one business priority for 2011 is the enhancement of our service offering across our claims and underwriting functions. Towards the end of 2010, we experienced a number of challenges with our new claims platform that affected our customers and brokers. As we enter the new year, we are, however, pleased to confirm that these areas have been resolved and we are now able to turn our attention to refining our service offering further to create a market-leading differentiated service proposition.

With consumer protection an ongoing regulatory concern and the Treating Customers Fairly concept hitting the headlines, focus on the customer will be paramount for insurers during 2011 and beyond. The companies that maintain their lead will be those who are able to demonstrate the customer is genuinely placed at the centre of organisational thinking and that the ethos of customer centricity is embedded throughout the core business functions. Zurich South Africa is in a strong position to take a leading industry role in this area, leveraging off the Zurich UK model which is recognised as industry best practice, whilst retaining customer centricity as a fundamental cornerstone of the Company’s strategy.

Alongside our core business activities, we will continue to embed a high-performance culture throughout the organisation. We have robust plans in place to develop the talent within the Company and our performance management measures and career development programmes will enable us to continually enhance and develop the skills and capabilities of our most valuable asset – our people.

We continue to take our commitment to social economic development extremely seriously.  Our aspiration to be the leading empowered insurer in our chosen markets not only permeates our core business operation, but also reflects in our commitment to contribute to the sustainable development of African society.

During 2010 we supported a number of initiatives, including our participation in MaAfrika Tikkun’s community project which operates in Diepsloot, north of Johannesburg, and which focuses on uplifting disadvantaged communities with emphasis on the support of orphans, vulnerable children and their families.

Alongside this programme, we continue to develop our relationship with our shareholder, Royal Bafokeng Holdings, and this extends far beyond the financial aspects of the shareholding arrangement. We support a number of existing social programmes including a mobile library, the Tapologo HIV/Aids Hospice and the Phokeng Trauma Centre for victims of crime and sexual abuse. During the course of 2011 we will look into new opportunities to support the upliftment of literacy and numerical skills within the Bafokeng communities.

With 2010 now firmly behind us, we would like to acknowledge the contribution of our employees, Board members and executive team in supporting the successful turnaround of the Company. During the year Steve Phiri and Stefan Mäder resigned as Directors and we would like to thank them for their valuable contribution. We have an exciting year ahead of us. Zurich South Africa is the leading global local insurer in the South African market and we will now take action to seize market share and take our business to a new level.