Zurich Financial Services AG, Switzerland’s largest insurer, posted a 51 percent decline in second-quarter profit after increasing loan-loss provisions for its commercial property books in the U.K and Ireland.
Net income fell to $707 million from a restated $1.43 billion a year earlier, the Zurich-based company said today in a statement. The shares dropped as that missed the $792.6 million average estimate of eight analysts surveyed by Bloomberg.
Zurich Financial said last month it would increase loan-loss provisions for its commercial property books by $330 million on continued market weakness. The insurer’s combined ratio, a measure of profitability, worsened on claims from natural disasters, including February’s earthquake in Chile.
“Overall it’s a miss because of the impact of some large losses and all looks rather uninspiring,” said Stefan Schuermann, a Zurich-based analyst with Vontobel who has a “buy” rating on the stock. “The business needs a push from the U.S. economy.”
The insurer’s shares fell 4.3 percent or 10.8 francs, the most in four months, to 238.9 francs in Zurich trading. That pared this year’s gain to 5.5 percent and cut the company’s market value to 34.8 billion francs.
The combined ratio worsened to 96.9 percent in the first half from 96.7 percent after $200 million of claims from the Chile earthquake and a $20 million loss from the Deepwater Horizon rig explosion. A ratio over 100 indicates the insurer is making an underwriting loss.
“The higher occurrence of severe weather and catastrophe-driven events compared with prior year combined with lower volumes particularly impacting the expense ratio resulted in a deterioration of the combined ratio,” Zurich Financial said in an e-mailed statement.
Other indirect losses from the disaster in the Gulf of Mexico won’t be “material,” Chief Financial Officer Dieter Wemmer told reporters today.
Insurers’ losses from natural catastrophes totaled $22 billion in the first half of the year, more than double the average for the period since 2000, Munich Re said last month.
Zurich Financial said last month that it “significantly” cut new U.K. commercial property lending during 2009 and stopped it altogether in Ireland. The company set aside an extra $250 million against U.K. loans and $80 million in Ireland.
“As it stands, we feel that we’re rather at the upper end with regard to these provisions,” Chief Executive Officer Martin Senn said in an interview. “This is a non-core activity and we have stopped writing any other credits and banking related activities.”
The expense ratio in general insurance worsened to 27 percent from 25.5 percent a year earlier. The measure is the percentage of premiums used to pay all the costs of acquiring, writing and servicing insurance and reinsurance.
Zurich Financial’s general insurance unit, which is being reorganized by former global life head Mario Greco, reported an 8.4 percent decline in operating profit to $756 million in the second quarter.
The insurer plans to reduce costs at its European general insurance unit after price wars in the U.K., Italy and Germany helped cut gross written premiums at the business by 13.5 percent in the quarter. Total premiums for the global general insurance business fell by 6 percent in the three-month period.
The European unit’s head Annette Court left the company by “mutual agreement” earlier this year.
Operating profit at the global life unit dropped 12 percent in the quarter to $369 million. Zurich Financial last month put David Sims in charge of its European life business. Operating profit at its Farmers unit declined 4.3 percent in the period.
The insurer restated profit in March after a change in accounting procedures at its U.S. life business.
French rival Axa SA, Europe’s second-biggest insurer by market value, yesterday reported a 29 percent decline in first-half profit after a loss on the sale of U.K. operations. Legal & General Group Plc, the U.K.’s second-biggest life insurer by assets, yesterday reported first-half profit that beat estimates as it earned more from selling annuities and income-protection products.