Zurich Financial Services said second-quarter net income increased 8 percent, with improved investment results fueling the overall jump, while catastrophe losses proved to be a drag on property-casualty operating results.
Management said its subprime mortgage investment has minimal impact, as it reported that across all operations the company added nearly $100 million to the bottom line, with overall net income for the quarter coming in at nearly $1.3 billion, compared with $1.2 billion in second-quarter 2006.
Net investment income (from interest and dividends) grew 18 percent to over $3.2 billion in the quarter. In addition, realized investment gains (from sales of securities) were also more than $3.2 billion, reversing realized losses of $2.8 billion for second-quarter 2006.
During a conference in Zurich this morning, James Schiro, chairman and chief executive officer, described the overall health of the investment portfolio in the context of the current state of global credit markets, noting that subprime debt does not pose "any material exposure."
Chief Financial Officer Dieter Wemmer said U.S. subprime mortgages account for just $340 million of a $117 billion debt portfolio.
Excluding realized investment gains (and taxes), operating profit across all segments was flat at $1.5 billion for second-quarter 2007 and second-quarter 2006.
While property-casualty operations–referred to as general insurance–contributed operating profits of $703 million for second-quarter 2007, the figure was roughly $200 million lower than the $904 million operating figure reported for the p-c businesses in second-quarter 2006.
Driving the decline in operating results on the p-c side were $400 million in losses related to floods in the United Kingdom, which pushed the p-c underwriting profit to just $27 million, compared with $412 million in second-quarter 2006.
During this morning's conference, Mr. Schiro and Mr. Wemmer focused on half-year results, noting that p-c operating profits grew 3 percent to $1.8 billion.
While the overall first-half combined ratio rose two points to 96.5, Mr. Wemmer noted that $566 million in catastrophe losses (including more than $100 million for winter storm Kyrill recorded in the first quarter) added 3.9 points to the result.
On the other hand, $465 million in prior-year favorable loss development shaved 2.7 points off the p-c combined ratio, he said.
"We effectively absorbed significant catastrophe losses," said Mr. Schiro, going on to note Zurich's "ability to manage the twin levers of profitability and volume" by selectively growing its diversified book in the segments where the best profit opportunities exist.
Gross p-c premiums grew 3 percent overall in the first half to $19 billion, Mr. Schiro said, highlighting 2 percent growth in "preferred baskets" of the difficult North American commercial lines market. Overall, however, gross premiums for North American commercial lines actually fell 3 percent to $5.8 billion.
John Amore, the CEO of general insurance, said rate pressure is most evident on U.S. global corporate liability lines. He also said that Zurich has no losses reported to date in its directors and officer book arising from subprime mortgage problems.
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