Zurich Says Half-Year Profits Up

Zurich Financial Services Group bucked the trend of most insurers and reported a profit for the first half of the year, reporting a slight drop in its combined ratio despite the falling prices affecting the industry.

The Zurich, Switzerland-based company reported net income increased $5 million to $2.68 billion for the first six months of the year. This translated into an earnings per share increase of 68 cents a share to $18.99 a share.

The company did not report quarterly results.

Despite the performance, the results were not immune from the effects of the soft market, noted Zurich Chief Executive Officer James J. Schiro during a conference with investment analysts.

Mr. Schiro said Zurich would take whatever actions necessary to protect the company and continue with its strategy for profitable growth.

Dieter Wemmer, chief financial officer, said the company has responded to soft market realities and losses in investment income with headcount reductions in the United States, United Kingdom and elsewhere.

He said U.S. operations headcount has been reduced by 6 percent resulting in a $63 million charge, and U.K. operations will see headcount reductions of 10 percent resulting in an estimated charge of 10 percent.

For the six months compared to last year, general insurance operating profit rose 22 percent, or $398 million, to $2.2 billion. Gross written premiums rose 8 percent, or $1.6 billion, to $20.6 billion. The combined ratio improved 0.3 points, dropping to 96.2.

Reporting on its Los Angeles-based Farmers Insurance Group, which the company manages but does not own, catastrophe losses in the Midwest contributed to deterioration of that company’s combined ratio.

Zurich received fee income from Farmers of $1.2 billion, an increase of 9 percent, or $103 million.

However, Farmers reported net income dropped 8 percent, or $55 million, to $617 million. Gross written premiums increased 12 percent, or $930 million, to $8.7 billion. The combined ratio deteriorated 6.5 points to 104.2.

Mr. Schiro said the company has examined Farmer’s losses and determined that the deterioration was not a result of “weakening of underwriting.”

He said the company is satisfied that the issue is not systemic but the result of the catastrophe losses. He noted that those losses occurred with many long-time customers who have been very profitable in the past.

Mr. Wemmer noted that despite the losses at Farmers, the company still has capital in place to continue with a growth strategy while maintaining underwriting discipline.

In its other business, global life, net income increased 6 percent, or $45 million, to $766 million.

On the investment side, Mr. Wemmer said Zurich took a $10 million write-down related to the subprime mortgage market and is leaving some municipal bond investments.