Bloomberg News

Zurich Insurance Profit Drops After Year-Earlier Asset Sale

August 16, 2012

Zurich Insurance Group CEO Martin Senn

Martin Senn, chief executive officer of Zurich Insurance Group AG. Photographer: Jon Halty/Bloomberg

Zurich Insurance Group AG (ZURN), the biggest Swiss insurer, said second-quarter profit declined 19 percent after a gain in the year-earlier period from selling a stake in New China Life Insurance Co. (1336)

Net income fell to $1.08 billion from $1.33 billion a year earlier, the Zurich-based company said in a statement today. That compares to the $994 million average estimate of 16 analysts surveyed by Bloomberg.

Zurich Insurance booked a gain of $441 million in the year- earlier quarter from the sale of 5 percent of New China Life. The company last year acquired 51 percent of Banco Santander SA (SAN)’s Latin America insurance unit to build its emerging markets business as low interest rates depress investment income.

“We have a lower investment income which is a factor for the lower income in the second quarter,” Chief Financial Officer Pierre Wauthier said on a conference call. “This is reflecting the low interest rate environment.”

Zurich Insurance declined 0.5 percent to 225 francs as of 9:11 a.m. in Swiss trading, bringing this year’s gain to 6 percent and giving the company a market value of 33.2 billion francs ($34 billion).

Net investment income dropped 7.8 percent to $1.73 billion in the quarter as rates crimped returns from the insurer’s bond holdings.

Weather-related losses in the second quarter were about $100 million, after hail storms in Europe and an earthquake in Italy, the company said.

Natural Disasters

Natural disasters caused an estimated $5.48 billion of insured losses for insurers and re-insurers in the second quarter, down from more than $27 billion a year earlier, according to estimates from Aon Benfield, the world’s biggest reinsurance broker.

Allianz SE (ALV) and Axa SA (CS), Europe’s biggest insurers, earlier this month reported profit that beat analysts’ estimates helped by higher earnings at their life and health businesses.

“The result is OK, but nothing more,” said Stefan Schuermann, a Zurich-based analyst with Vontobel Holding AG. “There is little drive in the results today after Allianz’s upbeat earnings presentation last week.”

Zurich Insurance reported a business operating profit after-tax return on equity of 10.9 percent in the quarter compared with its long-term target of 16 percent.

That target may be difficult to achieve in the current low- interest rate environment and a target of 14 percent would be “more realistic” in the short term, Chief Executive Officer Martin Senn said today.

Zurich Insurance yesterday appointed Michael Kerner as CEO of its general insurance unit, replacing Mario Greco, who joined Assicurazioni General SpA as CEO on Aug. 1.

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

Martin Senn, chief executive officer of Zurich Insurance Group AG. Photographer: Jon Halty/Bloomberg

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