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Zurich Financial First-Quarter Profit Drops 32% After Catastrophe Claims

Zurich Financial Services AG (ZURN), Switzerland’s biggest insurer, said first-quarter profit declined 32 percent after claims from floods in Australia and the earthquake in Japan.

Net income fell to $637 million from $935 million a year earlier, the Zurich-based company said today in an e-mailed statement. That missed the $727.6 million average estimate of 11 analysts surveyed by Bloomberg.

Zurich recorded total claims of $517 million from the five natural disasters that hit the Asia-Pacific region in the first quarter, including the Brisbane floods, the Victoria storms and cyclone Yasi in Australia, the Christchurch earthquake in New Zealand and the earthquake and tsunami in Japan. The insurer said it will renew its German distribution agreement with Deutsche Bank AG for another 10 years.

“It was a weak quarterly operational performance, but the 223 percent Swiss solvency ratio and renewal of the bank agreement with Deutsche Bank are real good news,” said Fabrizio Croce, a Zurich-based analyst with Kepler Capital Markets.

Shares of Zurich fell 2.6 percent to 237.3 francs as of 9:03 a.m. in Zurich trading, paring this year’s gain to 4.7 percent.

The insurer said it meets the requirements for the new Swiss solvency rules that were introduced in January, and filed a solvency ratio of 223 percent to the country’s financial regulator at the end of last year.

Zurich plans to extend a distribution agreement with Frankfurt-based Deutsche Bank until the end of December 2022. That accounted for about half the insurer’s new business volume in Germany last year, said spokesman Angel Serna.

Catastrophe Claims

The agreement underscores “our determination to deliver on our strategy,” Chief Financial Officer Dieter Wemmer said on a conference call from Zurich.

Financial Times Deutschland reported last year that Deutsche Bank was preparing for the end of the relationship with Zurich and was seeking several partners to sell insurance products.

Aon Benfield, an arm of the world’s largest insurance broker, expects total losses for insurers and reinsurers to top $52.6 billion in the first quarter, compared with $40.6 billion for the whole of 2010.

“Results were impacted by the significant catastrophe events in the Asia-Pacific region during the first three months of the year,” Zurich said in the statement. “The slow economic recovery in the U.S. and much of Europe also impacted results.”

Combined Ratio

The insurer’s combined ratio, or spending on claims and costs as a percentage of premiums, worsened to 103.6 percent from 99 percent a year earlier.

Zurich wants to improve the ratio, a key measure of profitability in general insurance, by 3 percentage points to 4 percentage points in comparison to its peers. The insurer also plans to cut costs by $500 million over the next three years with more than two-thirds of the savings coming from its non- life business.

Zurich’s business operating profit from general insurance declined 56 percent to $276 million in the first quarter.

Zurich expects premium income at its Farmers Exchanges business, which declined 3 percent in the first quarter, to turn around in the current quarter, Wemmer said.

The company targets a return on equity of 16 percent over the medium term and plans the release $1.5 billion of capital from non-core businesses by 2015.

To contact the reporter on this story: Carolyn Bandel in Zurich at cbandel@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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