Zurich Slumps After $550 Million Write-Off in Germany
Zurich Insurance Group AG (ZURN), the biggest Swiss insurer, fell the most in six months after announcing plans to write off about $550 million following a review of its German general insurance business.
The company dropped as much as 4.3 percent and was down 3.6 percent to 237 Swiss francs as of 2:50 p.m. in Zurich trading. That pared the stock’s gain this year to 11 percent. Vontobel Holding AG (VONN) and Bank Sarasin & Cie. cut their buy ratings on the shares to hold and neutral, respectively.
The company appointed Mario Greco as head of general insurance in May 2010 to review the business after higher claims and price wars in Germany, Italy and the U.K. hurt profit. Greco left in August to become chief executive officer of Assicurazioni Generali SpA (G), with Zurich Insurance appointing Michael Kerner as his replacement. The company declined to comment on whether Greco had finished the review before his departure.
“This is a lot of money and it is a bit surprising -- it makes you wonder what Mario Greco did,” said Stefan Schuermann, a Zurich-based analyst at Vontobel. “The writedown was a trigger point to downgrade the stock today.”
Zurich Insurance will include the pretax write-off in its business operating profit for the nine months through September. The adjustment reflects moves to strengthen claims provisions, primarily in the long-tail liability lines selling medical malpractice policies and negligence insurance for architects and engineers, and write off part of deferred costs to acquire new business, the Zurich-based company said in a statement today.
“Zurich’s leadership is disappointed with this significant financial adjustment and has taken the necessary steps including engaging external experts to validate the remediation actions being taken in Germany,” the insurer said in the statement. “The other businesses continue to deliver as expected through the third quarter of 2012 and Zurich continues to progress well toward its strategic targets.”
Zurich Insurance will report earnings for the third quarter on Nov. 15. The company posted a 19 percent drop in second- quarter net income to $1.08 billion on Aug. 16, after a gain in the year-earlier period from selling a stake in New China Life Insurance Co. (1336)
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