Zurich Insurance Q3 profit soars on lower claims

[Zurich] Zurich Insurance Group AG's third-quarter profit more than quadrupled, beating estimates, as a decline in major catastrophes and cuts to reserves helped the insurer reverse a loss at its general-insurance unit.

Net income jumped to US$912 million from US$207 million a year earlier, Switzerland's biggest insurer said in a statement on Thursday. That compares with the US$765.5 million average of six analyst estimates compiled by Bloomberg.

Zurich, along with its European rivals, has struggled to improve profitability as lackluster economic growth and record-low interest rates hurt investment income and prices remain subdued in some markets. Chief Executive Officer Mario Greco is pushing through a costly overhaul that includes asset disposals and changes to its organization and management.

"The strengthening of Zurich's management team and simplification of the group organizational structure have been completed, while absolute costs have continued to fall, reflecting actions taken earlier in the year," Chief Financial Officer George Quinn said in the statement.

Mr Greco is focusing on overhauling general insurance after liabilities from the Tianjin disaster and US auto insurance and construction caused claims to jump and forced the company to increase its reserves to cover potential claims. The CEO is merging the unit with global life, organizing the company along regional divisions to simplify the company's structure. Zurich is also establishing a commercial business to serve corporate clients globally.

"Natural catastrophes and other weather events were benign in all regions," the insurer said in a presentation. While the general-insurance unit showed improvements across "much of the portfolio," it has not yet achieved the expected levels of profitability, the company said.

The combined ratio fell to 98.5 per cent from 108.9 per cent a year earlier as the company reduced reserves for potential liabilities. A ratio above 100 per cent means that the insurer has to pay out more in claims and costs than it earns through premiums. The general insurance business posted an operating profit of US$618 million compared with a loss of a US$183 million a year ago.

Zurich was little changed in Swiss trading this year through Wednesday. That compares with a 16 per cent decline on the Bloomberg Europe 500 Insurance Index. "All eyes are on the investor day" Michael Haid, a Commerzbank AG analyst with a hold rating on the stock, said before the results were released. "What will Greco do on cost cuts? Dividend? It's too early to say whether the overhaul is gaining traction." The insurer will provide an update on its strategic direction, financial targets and dividend policy at the its investor day on Nov 17 in London.

Operating profit rose in all major units in the quarter, while the net return on group investments fell to 0.9 per cent from 1 per cent, reflecting continuing pressure from low rates.

BLOOMBERG