Zurich reports profits halve

Zurich Financial Services has revealed that net income nearly halved to $3bn (£2bn) - down 47% - despite premium income rising.

Operating profit was down 23%. The combined ratio for general insurance was 98.1%, from 95.6% the previous year

The main points were:

• Business operating profit of $5.2bn, a decrease of 23%. BOP return on equity after tax of 16.8%
• Net income of $3.0bn, a decrease of 47 %. ROE of 12.1%
• General Insurance gross written premiums and policy fees of $37.2bn, up 4% or 2% in local currencies, and a combined ratio of 98.1%
• Global Life new business value, after tax, up 3% to $753m, with new business margin, after tax (as % of APE), of 23.1% and APE up 11% or 10% in local currencies
• Farmers Management Services’ management fees and other related revenues up 8% to $2.5bn
• Shareholders’ equity of $22.1bn, a decrease of 24%
• Diluted earnings per share of CHF 23.35, down 50%

“These results illustrate the quality of our business model and the value of our risk and investment management strategies, particularly in view of the rapidly deteriorating global economic environment,” said Zurich's chief executive James Schiro. “Looking forward, we do not see significant improvements in the economic environment in the near term, but our strong balance sheet, operational capabilities and well-balanced portfolio of businesses position us well to continue executing on our strategy.”

“Reducing cost, increasing efficiencies and sharpening our customer focus across all our businesses will be particularly critical in this market environment,” Zurich’s chief financial officer Dieter Wemmer said.

General Insurance figures

• gross written premiums and policy fees of $37,151m up from $35,650m
• operating profit of $3,535m down 12% from $4,024m
• combined ratio of 98.10% worsened from 95.60%

The company said: “General Insurance continued to benefit from its well-diversified book of business, delivering selective top line growth and a resilient bottom line despite a competitive market environment. Business operating profit was down 12% to $3.5bn, largely reflecting the impact of lower premium rates in certain commercial and corporate lines of business, but benefited from top and bottom line growth in Europe and select emerging markets. The combined ratio increased by 2.5 percentage points to 98.1%, mainly driven by increases in the loss ratio.

Gross written premiums and policy fees increased overall by 2% in local currencies (4% in dollar equivalent terms) as a result of selective growth. Organic expansion and the impact of integrating recent acquisitions contributed in equal amounts to this growth, reflecting General Insurance’s focus on attractive market segments such as personal and small business lines in Europe as well as in key emerging markets. Meanwhile, declines in premium volumes through reduced exposures occurred mainly in areas where the competitive environment led customers to decline offered rate levels required to meet technical price targets, such as in certain commercial lines in the US and UK. Finally, rate pressure continued to slow, in particular where rates had previously been most under pressure, with continued improvements in price trends now evident across a number of markets and resulting in a positive rate change in the last quarter of 2008.

The results of the business divisions were mixed. Europe General Insurance delivered profitable growth of 7% in local currencies through a combination of enhanced product propositions, effective distribution initiatives, improved renewal rates and successfully integrated acquisitions. At North America Commercial, the continued application of enhanced segmentation techniques, underwriting discipline and proactive targeting of profitable lines of business mitigated a significant portion of the effects of a challenging rate environment. The Group, though, still experienced reduced premium volumes where margins were most under pressure while at the same time the effects of the recent hurricanes also drove down profitability. Global Corporate’s gross written premiums slightly increased in local currencies, reflecting higher new business levels in Europe and Asia, while large and weather-related losses in North America and Australia lowered profitability. International Businesses continued to experience significant premium growth of 10% in local currencies, coupled with an improvement in profitability by more than 40%, reflecting strong rate movements in Australia as well as new product lines and distribution channels in Latin America.

“Our focus in 2009 will be on two areas,” according to John Amore, CEO General Insurance. “The first will be securing adequate rates, and based on our Global Corporate January renewals, where our average renewal rates increased over 5% in the US and 1% in Europe, we expect to see a continuation of last year’s positive pricing trends. Our second priority will be to continue to rigorously manage our expenses in response to market conditions.”