Bloomberg News

Zurich Financial Profit Drops 46% on Thai Floods, Tax Rate

February 21, 2012

(Updates with shares in fifth paragraph.)

Feb. 16 (Bloomberg) -- Zurich Financial Services AG, Switzerland’s largest insurer, said fourth-quarter profit declined 46 percent after losses from Thai floods and other natural catastrophes.

Net income fell to $557 million from $1.04 billion a year earlier, the Zurich-based company said today in an e-mailed statement. This missed the $729.1 million average estimate of 11 analysts surveyed by Bloomberg.

The company booked insured losses after reinsurance of $225 million in the quarter, said Chief Financial Officer Pierre Wauthier, adding that earnings were also crimped by a higher tax rate and a donation to charity. Zurich Financial said it will keep its dividend unchanged after increasing its 2010 payout to an 11-year high of 17 Swiss francs ($18.53) per share.

“Once again they are going to pay a really high dividend,” said Martin Schwab, a Zurich-based analyst with Bank Sarasin & Cie. AG. “The results were slightly below consensus generally, so at least it is a good thing they will keep the dividend at 17 francs.”

The shares fell as much as 2.4 percent in Zurich trading and were down 1.8 percent to 228.9 francs as of 10:05 a.m. That pared the stock’s gain this year to 7.8 percent.

Full-year profit rose 10 percent to $3.77 billion after the firm’s net investment result contributed $9.4 billion to total revenue, Zurich Financial said.

‘Devastating Earthquakes’

“We delivered a good result in a year characterized by natural catastrophes, including devastating earthquakes in Japan and New Zealand as well as exceptional weather-related losses around the globe,” Chief Executive Officer Martin Senn said in the statement.

The company booked insured losses of $1 billion after reinsurance last year following the floods in Thailand and the earthquake in New Zealand, compared with major catastrophe losses of $275 million in 2010.

Market declines, flood losses, a higher tax rate and a “charitable contribution” of about $100 million to the insurer’s Z Zurich Foundation cut profit in the fourth quarter, Wauthier said.

The insurer’s combined ratio, which measures claims and costs as a percentage of premiums, worsened to 98.93 percent in the quarter from 98.56 percent, following the catastrophe losses. A ratio below 100 percent means underwriting is profitable.

Zurich Financial, Swiss Life Holding AG and other insurers may post slower premium growth this year as the economy deteriorates, according to the Swiss Insurance Association, an industry lobby group.

Missing Target

Business operating profit after-tax return on equity dropped to 10.2 percent in 2011, missing its target of 16 percent over the long term. Senn said on Dec. 1 that Zurich Financial may miss its target if the “current economic outlook persists.”

The company estimates its solvency ratio under a Swiss test was about 190 percent at the end of last year compared with more than 200 percent three months earlier. The ratio was hurt when Zurich Financial increased its equity holdings to 3.2 percent of total investments from 2.7 percent, according to Wauthier.

Chief Investment Officer Cecilia Reyes said on Jan. 26 that income from bond investments will stay “low for years to come” as central banks keep borrowing costs near zero, adding that it will be a “challenge” to meet investment-income targets.

--Editors: Dylan Griffiths, Steve Bailey.

To contact the reporter on this story: Carolyn Bandel in Zurich at cbandel@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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