The Swiss insurance giant beat some analysts' expectations with its full year results but it is not plain sailing ahead
Zurich’s general insurance business has performed well in 2008 results beating many analysts’ expectations.
The Swiss insurance giant posted operating profit of $3,535m in 2008 for its general insurance business, down 12% compared to 2007. Net earned premium increased 4% to $30,922m from $29,731m in 2007. The combined operating ratio deteriorated by 2.5 points to 98.1%.
The performance was for the most part ahead of some analysts’ expectations. Citigroup had predicted operating profit of $3,445m and a combined ratio of 98.4%.
But net earned premium was slightly below expectations. Citigroup predicted net earned premium of $31,479m.
Zurich’s European general insurance business performed particularly well. It reported business operating profit of $1,833m in 2008 compared to $1,453m in the previous year. The combined ratio improved from 96.6% to 94.5%. The UK business, part of the European division, achieved organic growth of 2%, which was attributed to strong action in personal lines motor and professional liability.
The European business’s result offset the relatively weak performance of the Global Corporate division, which had been hit by hurricane and other large weather-related losses in North America as well as declining premium rates. Global Corporate operating profit fell to $47m from $738m in 2007, while the combined ratio deteriorated to 112.4% from 96.2% in the same period.
The financial results highlight some areas of challenge for the business. First, soft premium rates have contributed to an increase in loss ratios (alongside higher catastrophe losses). The speed with which the market cycle turns will play an important part in the future performance of the general insurance business. This aspect appears to be less significant for the European business. The future of AIG, which is a major competitor on global corporate business, will be an important factor.
The impact of the recession on claims cost remains uncertain.
The general insurance expense ratio has also increased – rising by 0.4 points to 25.5. Zurich attributed this to higher commissions driven by changes to its business mix and the impact of recent acquisitions. This was offset to some extent by improvements to its operational efficiency – in the UK for instance Zurich streamlined operations and reduced staff numbers by 900. This will be an area that the group must continue to focus on.
