Zurich Financial Posts Profit After Last Year's Loss

By Michael Ha

NU Online News Service, Aug. 22, 3:01 p.m.EDT?Zurich Financial Services posted $701 million in netprofit for the first six months of 2003, in contrast to one yearago, when it recorded a loss of $2 billion for the first half ofthe year.

But one analyst expressed a lingering concern about thecompany's financials, especially the possibility of further reservestrengthening.

This week, James Schiro, chief executive officer at the Zurich,Switzerland-based insurer, said there are several positive factorsthat contributed to the company's first-half profit, includingbetter claims-and-expense management in core businesses as well as"firm prices in most non-life markets."

Mr. Schiro also noted, "The record for the first six months of2003 confirms that our action plan and our goal of restoringZurich's profitability are on track."

Zurich also posted premium growth of 29 percent in its non-lifeinsurance operations, to $19.3 billion, as well as a 20.9percentage-point improvement in the combined ratio, to 98.8percent.

On the expense side, the company said its net non-life andreinsurance reserves were boosted by $3.2 billion, to $32.8 billionso far this year, and $474 million was used to strengthen itsailing Centre unit in the United States--the unit recorded a lossof around $463 million for the first half.

"Certainly in terms of non-life, the company reported loweredexpenses and quite a good combined ratio of 98.8 percent for thefirst half of 2003," commented Andrew Murray, a London-basedanalyst for Fitch Ratings in New York. "Also, this good combinedratio was not just from North American operations--the continentalEurope and U.K. operations also did well," Mr. Murray said.

One concern Mr. Murray expressed is the likelihood that thecompany will need to further strengthen reserves in the latter-halfof 2003: "We expect it will have to," he said.

But if there are additional reserve boosts before the end of theyear, they will at least be offset by expected profits from ongoingstreamlining process. This past May, the company announced it willsell off its U.S.-based Zurich Life to Bank One Corp. in Chicagofor $500 million in cash. This transaction is expected to becompleted before the end of next month.

Also, last June, the insurer said it will sell its U.K.-basedThreadneedle Asset Management Holdings to American Express in NewYork for some $570 million to be paid on the deal's completion,sometime before the end of the year.

Zurich noted in its earnings report that the company continuesto exit "peripheral markets and activities" that it considersnon-core or not aligned with management's performance goals.

"And they haven't completed most of the major disposals theyannounced. So in terms of profits, they really haven't taken anyrealized gains yet on these disposals," Mr. Murray observed.

Mr. Murray added that Zurich is now expecting those profits tocome through before the year's end. "And the company is nowsuggesting that if they have to increase reserves, then at leastthey got this expected profit coming from disposals. They said theypossibly expect these two to match up," he noted.