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Europeans post mixed bag of first quarter results

Converium operating income up 192%
Swiss reinsurer Converium opened its 2004 reporting season on 30 April with news that operating income had nearly doubled to $77.2mn, while net income rose 157.6 percent to $66.7mn.

Gross premium written also rose, up 9.5 percent to $1.4bn, with net earned premiums reaching $993mn, up 12.3 percent.

There was, however, a $42mn reserve increase on motor and US specialty business.

Commenting on the results Converium chief executive Dirk Lohmann confirmed that the company was now looking to acquire new businesses in the European life sector.

In a research note released on the day of the results, analysts at equity brokers Pictet & Cie reiterated their "neutral" rating on Converium and raised their target price estimates for the company from CHF72 to CHF75.

They said the increase was partly driven by Q1 investment yield of 3.6 percent, helped by the efficient investment of cash flows into high yielding assets and currencies.

They raised 2004 and 2005 EPS estimates from CHF7.48 to CHF7.83 and from CHF7.47 to CHF7.81, respectively.

Mapfre profits up 32.6%
Also on 30 April, French reinsurer Mapfre said earned net profits rose 32.6 percent to hit EUR45.2mn.

Pre-tax business volumes at the Group's commercial insurance operating unit increased from EUR10.3mn in Q1 2003 to EUR18.7mn for the first quarter of 2004, helped by new insurance programmes for the Telefónica Group, Spanair and Trasmediterránea.

Reinsurance premium grew more than 30 percent to EUR14.5mn against EUR10.4mn in Q1 2003.

Analysts' send mixed messages on Allianz
The first quarter results of German insurance giant Allianz were met with a deluge of research notes. As reported in Insider Week No 122, Allianz posted first quarter net profits of EUR650mn on 14 May, with subsidiary Dresdner Bank making its first profits for a year and half.

According to Allianz, the improvement was attributable "to the ongoing drive to reduce administrative expenses and to significantly lower loan loss provisions". Dresdner contributed EUR102mn to the group's EUR675mn net income for the quarter.

But in the week following the results, Merck Finck analyst Konrad Becker reduced the insurer's fair value target from EUR107 to EUR105, against a current share price of circa EUR80.70, while reiterating a "buy" rating on Allianz.

According to Becker, the downgrade was partly driven by a decline in the company's non-trading assets from 16.3 percent at the end of 2003 to 14.6 percent at the end of the first quarter of 2004.

In contrast to Merck Finck's somewhat negative stance, however, analysts at Merrill Lynch raised their estimates on the company, while maintaining their "neutral" rating.

According to their research note, the company is set for a robust improvement in earnings in upcoming quarters and breakeven operating profits over the remaining three quarters of 2004.

They raised Allianz's EPS estimate for 2004 to EUR4.53, setting EPS estimates for 2005 and 2006 at EUR6.68 and EUR6.46, respectively.

On 17 May, analysts at JP Morgan also maintained a neutral rating on Allianz. They noted improved earnings growth at the company's subsidiaries and a combined ratio of 100.6 percent in the first quarter of 2004, against 105.4 percent in the first quarter of 2003.

They added that improved performance in non-life and life segments would result in increased dividends, but that revenues for 2005 are expected to remain flat.

JP Morgan set EPS estimates for 2004, 2005 and 2006 at EUR7.20, EUR9.82 and EUR11.36, respectively.

Hannover 'buy' reiterated
Meanwhile, following its 17 May Q1 results announcement in which it pointed to a "vigorous surge in profitability", German reinsurer Hannover Re had its "buy" rating reiterated by equity analysts at Merrill Lynch, with a one-month price objective set to EUR36.

In a research note published following the 1Q announcement Merrill Lynch's analysts said Hannover Re's first quarter results were broadly in line with expectations, adding that its life and financial reinsurance business segments were responsible for a robust contribution to the bottom line.

Green shoots of recovery at R&SA?
For UK insurer R&SA, the first quarter of 2004 heralded an improvement in its position as operating profits rose 30 percent to £100mn.

Post-tax quarterly profits came to £66mn against 2003's Q1 loss of £9mn, with strong performance in the Group's Scandinavian operations and better results at its Canadian arm.

As reported in Insider Week No 122, the improved figures come after a challenging 2003, which saw cost cutting, job losses, a mammoth restructuring programme, a £960mn rights issue and multiple disposals of the firm's subsidiaries.

In a research note titled "R&SA: progress behind the noise", Collins Stewart analyst Tim Young said R&SA was showing "continuing progress" by "reducing its exposure to or disposing of unprofitable businesses, especially in the US and Canada, and focusing on profitable operations".

He added that the company's capital position was "much better than expected" and that its operational performance was still ahead of targets.

The UK arm had enjoyed a strong commercial result, he said, with personal lines benefiting from a shift to direct distribution, while the group's Scandinavian operations had enjoyed a better than forecast 90.6 percent combined ratio.

He added that a renewed focus on core operations was likely to mean the sale of the Group's Scandinavian operations at some point, despite their performance "ahead of expectations".

With shares trading at a 40 percent discount to Collins Stewart's fair value estimate of 124p, R&SA was among the cheapest of the large European insurers, he noted.

Scor's turnover slumps
On 18 May, French reinsurer Scor posted results for the first quarter of 2004 that it said reflect the improved technical quality of its underwriting.

There was an improvement in its combined ratio, which reached 98.8 percent for non-life business against 121.3 percent for 2003 and 100.1 percent in the first quarter of 2003.

More negatively, however, it said gross premiums written came to EUR716mn, down from EUR1.2bn for Q1 2003, while turnover fell a full 43 percent to EUR717mn.

The less than outstanding results come after a painful 2003 for Scor, which saw multiple downgrades by ratings agencies and serious reserve issues partly as a result of problems at its Bermuda arm Commercial Risk Partners (CRP).

ZFS progress continues
Switzerland's biggest insurer, Zurich Financial Services (ZFS) put in a strong first quarter showing with a fourfold increase in net profits to $702mn (SFr901mn).

This compared to consensus estimates of a $650mn profit. ZFS said the improvement was down to cost-cutting, a benign claims environment and better than expected investment income.

ZFS CEO James Schiro commented: "The results reflect our continuing ability to manage our businesses with sound pricing and a tight grip on cost and expenses."

The announcements follow a record $3bn loss for ZFS in 2002, and the loss of more than 4,500 jobs - almost ten percent of the work force.

For 2003, however, the insurer posted a partial recovery with profits of more than $2bn (see Insider Week passim).

Groupama back in black
French insurer Groupama last week put 2002's EUR154mn loss behind it, announcing 2003 net earnings of EUR155mn.

CEO Jean Azéma commented: "The growth drive generated by Groupama has enabled us to achieve our strategic objectives for the year. In 2003, we strengthened our position as a multi-line insurer in France while offering a new range of banking services to our customers. This year for the first time our international operations made a positive contribution to profit. These good figures mean we can be confident about keeping up with our agenda which particularly targets improvements in the Group's operational performance."

However, the company's 107.3 percent combined ratio stands in stark contrast to average combined ratios published for the Lloyd's market two weeks ago, which stand at 90.7 percent (see Insider Week No.117). Azéma said the high ratio was partly the result of fire and weather related losses in France.

French P&C business contributed EUR39mn to the bottom line, while French life business contributed EUR169. The Group's Spain, Italy, UK and Portugal operations all helped Groupama's international activities into profit for the first time.

Azéma said Groupama expected to begin business in China by mid 2004, having obtained a licence to operate in Sichuan province in June 2003. He also hinted that the group would aim to float in 2005 or 2006.

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