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Zurich Insurance Net Falls 7% as Rates Hurt Investments

Zurich Insurance Group AG (ZURN), Switzerland’s biggest insurer, said first-quarter profit dropped 7 percent after investment returns declined.

Net income fell to $1.06 billion from $1.14 billion in the year-earlier period, the Zurich-based insurer said today in a statement. That missed the $1.14 billion average estimate of 10 analysts surveyed by Bloomberg. The shares dropped.

Insurers are struggling in the face of low interest rates and Zurich Insurance reported a decline in operating profit at its property and casualty business, which generates most of its sales. Allianz SE (ALV), Europe’s largest insurer, said yesterday first-quarter profit rose 24 percent to 1.71 billion euros ($2.2 billion) as higher prices pushed revenue to a record.

“I’ve seen better quarters,” said Daniel Bischof a Zurich-based analyst with Helvea. “General insurance was the biggest miss and Zurich disappointed compared to its peers.”

Zurich Insurance fell as much as 4.6 percent, the biggest intraday decline in more than a month, and was down 3.6 percent at 260.60 Swiss francs as of 9:09 a.m. in Swiss trading. That pared this year’s gain to 15 percent and valued the company at 38.8 billion francs ($40 billion).

Photographer: Adrian Moser/Bloomberg

The entrance to the main building of Zurich Insurance is seen in Zurich. Close

The entrance to the main building of Zurich Insurance is seen in Zurich.

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Photographer: Adrian Moser/Bloomberg

The entrance to the main building of Zurich Insurance is seen in Zurich.

Challenging Environment

Operating profit from general insurance dropped 6 percent to $807 million after tripling in the year-earlier quarter. The unit was reorganized last year and has toughened controls in emerging markets to avert a repeat of a $680 million write-off in Germany last year.

“We continue to operate in a challenging economic environment with persisting low interest rates against which we have posted strong, high quality underlying profits,” Chief Executive Officer Martin Senn said in the statement. “We remain on track to deliver our 2013 targets.”

Total investment returns declined to 0.4 percent during the quarter from 2 percent in the year-earlier period amid “persistently low interest rates,” the company said. The net investment result fell 5 percent to $1.69 billion.

Losses from derivatives used for hedging resulted in net capital losses of $70 million compared with gains of $18 million a year earlier, Chief Financial Officer Pierre Wauthier said on a conference call.

Operating profit from its unit selling life and pension products rose 6 percent to $308 million with the acquisition of a Latin American insurance business from Banco Santander SA (SAN) in 2011.

Zurich Insurance is looking to bolster earnings by expanding in emerging markets and also bought an operation in Malaysia in 2011.

Zurich said its solvency ratio under Swiss rules introduced in 2011 rose to 185 percent on Jan. 1, from 178 percent six months earlier.

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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