Swiss insurer Zurich Financial Services AG on Thursday reported a 51% decline in second-quarter net profit, on lower revenue, costs for weather-disaster claims and the U.S. oil spill, and a charge for its U.K. property-lending portfolio.
The company, one of Europe’s larger primary insurers by premium income, said net profit fell to $707 million in the three months to June 30 from $1.43 billion a year earlier. Revenue was $9.54 billion, down 47% from $17.97 billion.
Operating profit was around $1.03 billion, about 31% below the $1.49 billion reported a year earlier.
Zurich Financial said in July it was taking a $330 million charge in the second quarter on its commercial-property lending business in the U.K. and Ireland, after a review determined the continuing deterioration in those two property markets.
The company reiterated that it expects claims payments of around $200 million before tax for the Chile earthquake, and property and liability insurance related claims of below $20 million from the oil spill in the U.S. Gulf of Mexico. It is closely monitoring the situation for possible secondary claims. Finance Chief Dieter Wemmer said, however, that the indirect claims will be limited. “I’m not having sleepless nights over those indirect claims,” he said.
Mr. Wemmer also said the company was on track for its targeted operational-improvement gains. Zurich aims for gains of $2.7 billion through its “Zurich Way” initiatives between 2009 and 2011. Of this, the remaining $900 million annually should be contributed in 2010 and 2011.
Several analysts, however, criticized the insurer’s shrinking top line. Gross written premiums fell 14% to $11.4 billion in the latest quarter, shy of the average forecast of $13.4 billion.
The data didn’t reflect the full impact of earthquakes, the oil spill or other large claims, as Zurich Financial released reserve provisions made earlier that were no longer needed. As a result, the insurer’s property-casualty combined ratio looked better than many of its peers. The ratio was 96.9%, an improvement from 99.03% a year earlier.
The combined ratio measures how many cents per U.S. dollar premium earned is paid for claims and other costs. A combined ratio below 100% means an insurer is making profits in its core underwriting business, when stripping off the investment income; a figure about 100% means the core business made a loss. Many other insurers reported combined ratios of above 100% for the second quarter.
Zurich Financial shares fell 3.6% to 240.80 Swiss francs ($228.74), making them the worst performer in the Swiss market.