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Zurich increases provisions for property loans in UK banking operations

16 July 2010

Zurich Financial Services Group today reported a USD 330 million increase in the loan loss provisions in its commercial property loan books in the UK and Ireland to be taken in the second quarter 2010.

During 2009, Zurich stopped new lending for commercial property development in Ireland and significantly reduced the level of new lending in the UK. In June 2010, Zurich stopped all new property development lending through its subsidiaries Dunbar Bank and Zurich Bank.

Loan provisions are regularly reviewed but given the continuing deterioration in the UK and Irish property markets, the Group has carried out a further review of its property development loan books and the respective provisioning levels.

The total increase for UK loans amounts to USD 250 million, reflecting the continued weakness in the commercial property development market. This is an increase in both specific and general provisions. The Group has revised its assumptions on recoverability, following an extended reduction in the rate of loan redemptions.

Pressure on property prices has affected the value of the underlying collateral supporting Zurich's loan book, especially in respect of undeveloped land, where market values have experienced significant deterioration.

In Ireland, the Group has increased provisions by USD 80 million, bringing the overall provision on the Irish portfolio to 50% of loan values, a level which is generally consistent with the average discount recently applied in the market.

These charges will be recorded in the Non-Core Businesses segment in the half year results 2010, which are due to be released on August 5, 2010. Following an injection of capital from the Group, both banks remain adequately capitalized.

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