Zurich reported third-quarter net income dropped 90 percent, but the company eked out a slim profit despite over $1 billion in investment losses and close to $600 million in hurricane exposure claims.
The Zurich, Switzerland-based insurer reported third-quarter net income fell $1.36 billion from $1.51 billion to $154 million.
For the nine months, the company said net income fell 32 percent, or $1.35 billion, from $4.19 billion to $2.83 billion.
The results were affected by $1.1 billion in investment losses stemming from impairments which included debt securities from bankrupt Lehman Brothers, Washington Mutual and Sigma Finance Corp. as well as equity impairments and write-downs on other debt instruments.
The carrier also said it suffered $595 million in catastrophe losses attributable to Hurricanes Gustav and Ike.
During a conference call with financial analysts, Dieter Wemmer, the company's chief financial officer, said $70-to-$80 million of losses were related to flood events in Europe caused by rains from the remnants of Gustav.
Chief Executive Officer James J. Schiro called the current economic condition challenging times that are testing both "business models and regulatory regimes."
He said that Zurich's business philosophy was "designed precisely to build resilience in difficult times and capture opportunity in better times," adding it is in a position to withstand the current economic turmoil.
He said the company remains very selective about where it underwrites risk and that now "there is firm evidence of pricing improvement in North America and in corporate markets." The company is positioned to take advantage of these improvements and is already benefiting from increases, he noted.
Mr. Schiro announced that because of the current economic crisis, the company plans to make an additional $200 million in cuts in expenses on top of what it has done in the past. It is also suspending its share buyback program.
Mr. Wemmer said the company has reduced employee headcount by 6 percent in North America, and in the United Kingdom the company plans to reduce the headcount by 1,000 or 15 percent of the workforce by the end of the year. He added that the additional $200 million in expense cuts the company plans will be in its general insurance division.
Reporting on business segments, general insurance for the nine months saw its profit drop 7 percent, or $201 million, to $2.58 billion. The combined ratio for the segment rose 1.8 points to 98.7.
Farmers Management Services (Zurich manages but does not own Farmers Insurance, based in Los Angeles) reported business operating profit for the nine months was down 9 percent, or $86 million, to $919 million. The Farmers Exchange combined ratio rose 10 points to 108.6.
During the call, Mr. Shapiro indicated that the company is capturing business from American International Group in the directors and officers and environmental lines.
He added that despite the recession, which will affect workers' compensation insurance because of policyholder's reductions in the number of employees covered, the company will make up for that loss in increased rates.
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