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ZFS outperforms on P&C strength

Insurance giant Zurich Financial Services (ZFS) last Thursday (17 August) reported half-year net profits of $1.96bn, up 9 percent on the first six months of 2005, and ahead of analysts’ consensus of $1.8bn.

The company booked operating profits of $2.85bn, up 24 percent on the prior-year period, and annualised return on equity of 19 percent.

Net profits included the insurer’s previously announced $262mn regulatory settlement in the US.

Performance was built on strong foundations in its property and casualty division, which exceeded expectations in the period, the combined ratio improving from 96.9 percent to 94.8 percent.

Gross premiums in the sector fell marginally by 1 percent to $18.5bn, but operating profit was up 29 percent to $1.78bn.

“Strong operational gains from across our businesses generated another excellent performance,” said the company’s CEO James Schiro.

“The success of our three-year operational improvement programme, combined with the improving quality of our general insurance portfolio and consistent growth in the life business, gives us confidence about Zurich’s continued operational momentum,” he added.

Claiming that ZFS is over-reserved - offering “comfort” should conditions deteriorate and the ability to “use reserve releases to smooth results” -  Collins Stewart analyst Tim Young said the insurer is relatively well prepared should a bad hurricane season strike the industry for the third year running.

“The timely spin-off of the reinsurance arm, Converium and tight underwriting discipline suggests that a bad hurricane season will differentiate ZFS from many of its peers – particularly the large reinsurers.

“Last year, ZFS was not especially exposed and won plaudits for giving an accurate estimate early on of ultimate loss,” he commented.

He also highlighted the company’s ability to execute its $1bn cost-cutting initiatives, with $500mn targeted this year and another $500mn next.

“Insurers often throw out apparently arbitrary cost savings initiative… but James Schiro has an impeccable record on delivery – sad for the 1,000 made redundant, good for shareholders,” he added.

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