Zurich Net Income Drops 53% As Recession Takes Toll

NU Online News Service, Sept. 2, 3:30 p.m. EDT

Zurich Financial Services Group, in August, reported a net income drop of 53 percent for the first half of the year as the recession continued to take a toll on the company's earnings.

Despite the drop, James J. Schiro, Zurich's chief executive officer, emphasized that the company still managed a profit even with the challenges it faced.

"We are effectively managing our way through this crisis," Mr. Schiro said during an analyst's discussion of the results on Aug. 6.

The Zurich-based insurer of property and casualty and life products reported net income dropped $1.43 billion to $1.24 billion for the first half of the year.

General insurance reported an operating profit of $1.7 billion, compared to $2.24 billion for the same period last year, a drop of 23 percent. The combined ratio for the segment remained flat at 96.2.

Mr. Schiro called the company's results "outstanding" and said Zurich is in a position of strength to take advantage of the economic turnaround that lies ahead.

Such a turnaround, he noted, would not happen quickly, and the improvement in the investment markets has only brought the company's investment portfolios back to "pre-crisis" levels.

He said many companies are struggling with the current recession, declaring it the "greatest economic dislocation in a generation."

He said the insurer is taking a disciplined approach to risk, refusing to chase volume and pushing for increased rates, which have risen by 4 percent in the past quarter.

The company continues to push efficiency, he said, with $900 million in improvement under its Zurich Way plan and an additional $400 million in expense reductions.

He said Farmers' Insurance, the insurance exchange the company does not own but manages, is well on its way to growth as it integrates its purchase of American International Group's Personal Auto Group into its operations.

Zurich plans to make acquisitions, he said, so long as they make economic sense.

Zurich Chief Financial Officer Dieter Wemmer noted that despite the economic downturn, the company's solvency was never threatened. During the conference, he displayed a graph illustrating the sharp downturn in profitability the company took between the second- and third quarter of 2008 and the steady increase in profitability it has seen since. Net income has increased from $154 million in the third quarter of 2008 to $892 million for the second quarter of this year.

"We stayed the course," Mr. Schiro told analysts. "Let's not lose site of the fact that we reported a profit when others reported losses."

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