Zurich’s Net Income Rises 20%, But CFO Says There’s Still ‘Much to Do’
May 15, 2014 by Marie Suszynski, Best's News Service correspondent
ZURICH – Zurich Insurance Group’s net income got a 20% bump during the first quarter as its chief financial officer said the company’s restructuring is on track.
Net income after tax attributable to shareholders rose to US$1.27 billion, compared with $1.06 billion during the first quarter of 2013. Business operating profit increased 2% to $1.38 billion.
The first-quarter combined ratio improved to 93.9 from 94.9 the previous year. The company had a one-off gain and lower catastrophe losses that contributed to the improvement.
“We see some early positive signs in the execution of our strategic targets for 2014 to 2016 but there is still much to do,” George Quinn, chief financial officer, said during a conference call. The company has announced it would begin a program to streamline the company and remove management layers between group and business units.
Currently, Zurich is where it expected to be in terms of restructuring, with most of the activity to be completed during the second quarter, Quinn said.
In March, Zurich said it would cut up to 800 jobs globally, leading to about $250 million in annual savings by the end of 2015. In March, Zurich had more than 55,000 employees worldwide (Best’s News Service, March 11, 2014).
During the quarter, general insurance business operating profit increased 5% to $845 million, with gross written premiums and policy fees remaining flat compared with a year ago. North American commercial business grew 3% after adjusting for a fronted portfolio that was not renewed.
The flat premiums for general insurance is a negative trend, according to a Quick Take analyst note from Sanford C. Bernstein. Zurich is losing market share in European business, which is the most profitable for the company.
“Contrary to market expectations, Zurich’s expense ratio is rising 100 basis points net of pension gains,” according to the analysis.
Zurich’s global life business operating profit rose 4% to $319 million and gross written premiums, policy fees and insurance deposits jumped 5% to $7 billion.
Farmers business operating profit was stable at $415 million. Farmers Exchanges are owned by policyholders and managed by subsidiary Farmers Inc.
Quinn called 2014 a transitional year for Farmers, with a 2% decline in gross premiums being a “marked improvement” over the 4% decline during the fourth quarter of last year. “We see some positive early signals that this improved momentum should continue as we go through the year,” he said.
Bernstein’s analysis said Farmers is losing market share because of an “excessive” expense ratio, although it was lower during the first quarter.
Zurich was shaken last year by the apparent suicide of its chief financial officer and the abrupt resignation of its chairman. In December, the company unveiled a three-year strategic plan that emphasizes its role as a “global and composite insurer.” In outlining its plan, Zurich identified three priority areas — corporate, commercial mid-market, and retail — which, it said, absorb 62% of its capital.
Zurich Insurance Co. Ltd., the main operating company of Zurich Insurance Group Ltd., currently has a Best’s Financial Strength Rating of A+ (Superior).