Bloomberg News

Zurich Insurance Profit Climbs as Catastrophe Claims Drop

May 10, 2012

Zurich Insurance Group AG (ZURN), Switzerland’s biggest insurer, said first-quarter profit climbed 78 percent after claims from natural catastrophes declined from record levels last year.

Net income rose to $1.14 billion from $640 million in the year-earlier period, the Zurich-based company said today in an e-mailed statement. That beat the $1.06 billion average estimate of 13 analysts surveyed by Bloomberg.

Operating profit at the firm’s general insurance business tripled after the year-earlier quarter was weighed down by $517 million of claims from five natural disasters in Australia, New Zealand and Japan. Zurich Insurance Chief Financial Officer Pierre Wauthier expects rates at the unit to continue rising after increasing by an average of more than 3 percent in the first quarter.

“General insurance is much stronger than expected, driven by the lack of catastrophe losses and the fact they were able to increase prices,” said Maarten Altena, an Amsterdam-based analyst with ING Bank, who has a “buy” rating on the stock. “Global life and Farmers have performed less well.”

Zurich Insurance rose as much as 1.7 percent and was up 1.5 percent to 221 francs as of 9:03 a.m. in Swiss trading. That brought this year’s gain to 11 percent and gave the firm a market value of 32.4 billion francs.

Tornado Losses

Operating profit in general insurance, the company’s biggest unit, climbed to $856 million. Claims inflation and the low-yield environment will result in further price increases, according to Wauthier.

Global life operating profit dropped 19 percent to $293 million as low interest rates put pressure on earnings. The insurer’s Farmers unit suffered from losses from tornadoes and hailstorms in the U.S, Wauthier said on a conference call.

Zurich Insurance hopes growth in emerging markets will help the firm attain a business operating profit after-tax return on equity of 16 percent over the long term. The company, which bought 51 percent of Banco Santander SA (SAN)’s Latin America insurance business and Malaysian Assurance Alliance Bhd. last year, will look for further acquisitions in emerging markets, Wauthier said.

“The execution of our strategy continues to be on track,” Chief Executive Officer Martin Senn said in the statement. “Our acquisitions and alliances have allowed us to deepen our position in several key markets.”

Zurich Insurance said its Swiss Solvency Test ratio dropped to 185 percent at the end of December from 225 percent six months earlier because of the lower interest rates and the impact of acquisitions. The test was introduced in January last year to align insurers’ risks with the capital they hold.

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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