ZURICH, May 10 (Reuters) - Switzerland's Zurich Insurance Group beat expectations on Thursday with a 78 percent rise in first-quarter profit, helped by fewer large natural catastrophes than the year before, and said premiums were set to rise.
Europe's second-biggest insurer by market capitalisation recorded a net profit of $1.14 billion for the first three months of the year. A Reuters poll of analysts forecast a net profit of $997 million.
“A thoroughly solid quarterly showing by the insurer,” analysts at Notenstein private bank said. “Longer term the prospects for Zurich seem to be intact.”
German rival Allianz also saw a favourable start to the year.
Zurich has been looking to boost business in emerging markets, clinching a deal with Santander to expand in Latin America and a distribution agreement with HSBC in the Middle East.
The strong rise in Zurich's profit occurred in part because profit last year was blighted by an unusually high number of natural catastrophes such as the tsunami in Japan. There were few big catastrophe payments and large claims this time around, and underwriting profitability also improved.
In general insurance, the firm's biggest segment, the combined ratio – a measure of underwriting profitability – improved to 94.6 percent from 103.6 percent a year earlier.
The better showing was due in part to lower payouts, but also because premium income rose 4 percent in dollar terms.
“We do continue to expect rate increases as we're improving the underlying loss ratio,” Chief Financial Officer Pierre Wauthier said, adding the rate increases were undertaken in part to compensate for higher claims and low investment income.
“You will always have the claims inflation and we're certainly determined to at least cover that.”
Insurers hold large fixed income portfolios, and the ultra-loose monetary policies enacted by the world's major central banks have pushed down bond yields and made generating higher investment returns difficult for insurers.
Allianz, the biggest insurer in Europe, has highlighted the risks stemming from the euro zone debt crisis.
Zurich has virtually no direct exposure to Greek sovereign debt, and began trimming its bond holdings of other peripheral euro zone states last year.
The spectre of Greece possibly leaving the euro has loomed large this week following a parliamentary election that left cash-strapped Athens unable to form a government.
“We look at such scenarios as part of our risk management processes and practices and we develop contingency plans, should such events happen,” Wauthier said.
As of March 31 the firm held 18 percent of its government bond portfolio in U.S. assets, 15 percent in British and 13 percent in German. It said 9 percent was in Italian debt, 6 percent in Spanish and 6 percent in French debt. (Reporting by Catherine Bosley; Editing by Mark Potter)
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