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Zurich Bank International Structured Deposits Q & A’s

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Presentation on theme: "Zurich Bank International Structured Deposits Q & A’s"— Presentation transcript:

1 Zurich Bank International Structured Deposits Q & A’s

2 Zurich Bank International
Q & A’s Who owns Zurich Bank International Limited? Our immediate parent is Zurich Bank, a company incorporated in Ireland. Zurich Bank is a wholly owned subsidiary of Zurich Financial Services (The Group), an insurance-based financial services provider with a global network of subsidiaries and offices in North America and Europe as well as in Asia Pacific, Latin America and other markets. Founded in 1872, the Group is headquartered in Zurich, Switzerland. It employs 60,000 people servicing customers in more than 170 countries. As at 30 September 2010, the consolidated balance sheet of Zurich Financial Services Group showed total assets in excess of USD 373 billion and shareholders equity of USD 31 billion. In November 2010, the Group reported a business operating profit and net income after tax of USD 3.5 billion and USD 2.4 billion, respectively for the first nine months of Business operating profit return on equity achieved was 12.2%. Zurich Bank International Structured Deposits

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Q & A’s 2. How safe is my money? Zurich Bank International’s business model and the Zurich Groups prudent policies and careful approach have stood us in good stead during the recent economic crisis. We’re regulated by the Isle of Man Financial Supervision Commission (FSC) and meet all regulatory requirements on a stand-alone basis. In addition, we have a strong parent and we’re members of the IOM Depositors’ Compensation Scheme. A Letter of Undertaking has also been issued by Zurich Bank to the FSC in the Isle of Man confirming that it accepts ultimate responsibility for the financial stability of its subsidiaries. Zurich Bank benefits from credit support, in the form of a net worth Surety Bond provided by Zurich Insurance Company (“ZIC”) – a core part of Zurich Bank’s ultimate parent, Zurich Financial Services (ZFS). Note: The effectiveness of the Surety Bond stated above can only be fully tested in the event a claim is made under these commitments. Zurich Bank International Structured Deposits

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Q & A’s 3. What is Zurich Bank International’s credit rating? Zurich Bank International does not have its own rating. However, third party agencies provide our parent company, Zurich Bank, with the following ratings: S&P: AA-/stable, Moody’s: A1/on review for possible upgrade. These ratings are as at December For more information and the latest ratings please visit 4. What do you do with my deposit? Zurich Bank International is primarily a deposit taker. It on-lends the bulk of these deposits to Zurich Bank, its parent company in Ireland. Zurich Bank uses these funds, along with other sources of funding it has, to manage liquidity for the Banking Group (i.e. Zurich Bank International, Dunbar Bank, and Zurich Bank). The Banking Group has a well diversified funding mix, currently split between deposits from retail customers, interbank/corporate deposits and deposits from elsewhere in the ZFS Group. In addition it benefits from committed facilities from a number of banks, which provide additional liquidity. There are currently no plans to change Zurich Bank International’s role as a deposit raiser for the Banking Group. Zurich Bank International Structured Deposits

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Q & A’s 5. What are Structured Deposits? Structured Deposits were introduced in the 1990’s as an alternative to more high risk equity based investments and they aimed to offer people more choice to help satisfy their savings needs. Structured Deposits allow savers to combine the traditional security of an ordinary bank account with the potential to benefit from the positive performance of equity or commodity indices. 6. How does a Structured Deposit differ from a Structured Product? It’s different from a structured product because it’s simply a bank account. The total deposit stays at a bank or building society and doesn’t end up in the hands of any third party. However where a traditional bank account calculates the return to be paid by offering a fixed or variable interest rate, usually linked to the Bank of England Base Rate, a Structured Deposit calculates return by linking it to the performance of an equity index (such as the FTSE 100) or a basket of stocks. This is done by using a derivative, arranged through a counterparty. Zurich Bank International Structured Deposits

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Q & A’s What is a Derivative? A derivative is a contract between two or more parties. These are called counterparties. Its price is dependent or ‘derived from’ another underlying asset. Its value is determined by a number of factors including price changes in that underlying asset. The most common underlying asset for Structured Deposits are market indexes like the FTSE 100 Index. Many other sorts of assets can be used for example stocks, bonds, commodities and currencies. Derivatives bring flexibility to a product design and the potential for higher rewards. 8. What would happen if the counterparty bank providing the return collapsed? Would I still receive a return? Yes, your contract is with Zurich Bank International and any return due will be paid by us. In order to protect ourselves we monitor how much each counterparty owes us, and when it exceeds a threshold (usually around £1m) we require that bank to place the cash equivalent of their debt to us on deposit with us. Therefore we are protected in the event of their failure. Zurich Bank International Structured Deposits

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Q & A’s 9. What is the minimum and maximum term for a Structured Deposit? Depositors are normally required to keep their deposit locked away for a set period of time, usually between three and five years. It’s important you understand the nature of the fixed term and that you feel confident you can leave your money on deposit for that length of time. You should be aware of the options available to your estate if you die during the term of the account. 10. Can I have regular income? Yes, some products pay out at the end of the term, these are growth products. Other products are designed to pay income and for these products the return would be calculated annually and paid out each year. There are normally more growth products available than income versions. You need to decide which option suits you better. If you wait until the end of the term to receive your return you need to consider any impact on your tax position if a large return is paid all at once at maturity. Zurich Bank International Structured Deposits

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Q & A’s 11. What are the different types of Structured Deposits? Each Structured Deposit calculates return differently. The most popular structures are: Digital: This is a very simple structure. If the index rises, the account pays out a specific return. The level of rise required and the amount of return to be paid is defined at the outset. As long as the increase in the index is the same or greater than the trigger level set a return will be paid. The return is the same even if there is a really large increase in the index. Participation: In this case, the FTSE index value is measured at the beginning and again at the end, and, if there’s been a rise in the value of the index then a return is received equivalent to a percentage of that rise. The participation rate that can be achieved changes depending on market conditions, for example, when the FTSE was high, it was normal to see participation rates of over 100% e.g. at 100% participation, if the index rose 10% you would get 10% interest. Capped: This works in a similar way to the participation version above, an upper limit is placed on the amount of participation in the index, e.g.100% participation up to a maximum of 40%. In effect you agree to give away the possibility of very high returns for the increased certainty of good returns if the index performs in a modest way. Zurich Bank International Structured Deposits

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Q & A’s Cont: What are the different types of deposit? Cliquet or coupon: With this type of product design, your return is based on a series of periodic measurements. The measurements of an index are taken at regular intervals and combined to calculate return at maturity. Cliquet structures usually set a particular target return for each year; the rules for when that return would be achieved should be carefully described in the product literature and can be quite varied. The return may be ‘locked in’ for a single period, or it can simply be recorded and the actual return calculated when all the periodic measurements are known. It’s also possible that the periodic return is paid out as income. Auto call: This is another variation on the participation products, the auto call has the additional option that on particular dates during the product something else might happen. For example, if at the third anniversary the index had risen by a certain amount, then the account would mature early and pay a set return. The nature of an ‘auto call’ is that, if the conditions of the account are met, the account matures automatically. If the conditions are not met then the account continues to run to the next trigger date or event, or of course to maturity when the original criteria for the return would be used. Zurich Bank International Structured Deposits

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Q & A’s What are the additional elements of Structured Deposits I need to consider? Averaging: Some products take more than one single measurement of the Index and create an average. This means you miss out on the full effect of any rises in the underlying Index but it also means you’re cushioned from the full effect of any falls. Tax and Wrappers: Exactly what tax you pay will be determined by your individual tax position and the ‘wrapper’ you choose to save in. The effect of taxation will have a significant effect on the gross return you receive and must be considered. Independent tax advice should be sought. Fees: Typically there are no additional fees attached to saving in a Structured Deposit. The fees have already been factored in when the provider and the distributor created the product, including any commission payment to an adviser. The inbuilt fees are one of the elements that make up the way the product has been priced. Others are the interest rates at the time the product was created, stock market volatility and the credit rating of the provider. Dividends: You will not receive any income from dividends paid on any shares. Inflation: Because your deposit will be locked away for a period of time inflation may erode its value. Zurich Bank International Structured Deposits

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Q & A’s 13. I have a Structured Deposit Account with Zurich Bank International. Is this covered by the Isle of Man Depositors’ Compensation Scheme? Yes, our Structured Deposit Accounts are classified as a bank deposit account and are therefore covered by the Scheme. The rules of the Scheme are quite specific and are primarily designed to protect individuals. 14. What cover do Limited Companies, small unincorporated Companies/ partnerships, SIPP & SSAS, charities have? The rules of the Depositor’s Compensation Scheme are quite specific and are primarily designed to protect individuals. For deposits on the Isle of Man please refer to the following website for further information; Zurich Bank International Structured Deposits

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Q & A’s 15. What do I need to consider in ensuring a Structured Deposit is right for me? You: are happy to tie up your money for a set period of time have considered the level of risk and reward you’re comfortable to take and are nervous about investing directly in stocks and shares accept that even if the product you choose is linked to an index you wont receive dividends payments from any shares in that index have read and fully understood the details of the product including the tax treatment are looking for a return that is potentially better than those offered by a traditional bank or building society account but you’re willing to accept that there is an element of chance about the return you’ll eventually receive and depending on the performance of the index you may not receive any return at all understand that the value of your deposit and any return may have been eroded by the effect of inflation during the term. have considered and disregarded other savings options. Zurich Bank International Structured Deposits

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