Zurich reports business operating profit of USD 2.2 billion for the first half of 2015

18 August 2015 —
Zurich Insurance Group (Zurich) today reported a business operating profit (BOP) of USD 2.2 billion and net income attributable to shareholders of 2.1 billion for the half-year ended June 30, 2015.

Chief Executive Officer Martin Senn said:

"While the positive trend in Global Life and Farmers has continued, with these businesses delivering good results, the profitability of our General Insurance business was adversely affected by large losses, particularly within Global Corporate and the UK, and a higher expense ratio. In consequence, our business operating profit return on equity for the first half of 2015 was 11.6%."

"We are addressing the expense ratio issue and expect to see the benefits of the measures we have already taken or are in the process of implementing coming through early next year. In addition, we have launched a number of actions to address the profitability issues in parts of our General Insurance business."

"In terms of our other key targets, we remain in a very strong position. First, our Zurich Economic Capital Model ratio stood at 120% at the end of the first quarter, at the top of our target range. And second, cash remittances are expected to exceed USD 3.5 billion for the full year and USD 10 billion for the period 2014-2016, well ahead of our target of USD 9 billion."

"Separately, we have informed the market that we are evaluating a potential offer for RSA Insurance Group plc. We believe that a transaction could bring significant benefits to us and to our investors in terms of the complementary fit of RSA's business with our own operations and in financial terms. But any capital deployment would need to meet the same hurdles that we apply to any other investment."

General Insurance BOP fell by USD 515 million to USD 1.2 billion, 31% in U.S. dollar terms or 27% in local currency terms. This was predominantly due to an increase in large losses in the UK and Global Corporate in North America, higher levels of catastrophe and weather related losses, and higher expenses. The increase in expenses was mainly due to one-off positives in the prior year and mix effects on commission, including the extended warranty business in Brazil. The combined ratio deteriorated 2.6 percentage points to 98.3%.

Gross written premiums and policy fees fell in dollar terms but increased by 3% on a local currency basis, with growth in all regions. The rate environment remained stable, with overall rates increasing by 1.4%.

Global Life BOP was USD 673 million, up 6% in U.S. dollar terms and 21% on a local currency basis. Gross written premiums, policy fees and insurance deposits increased by USD 612 million to USD 14.8 billion, or 4% in U.S. dollar terms and 22% in local currency. Annual premium equivalent rose 19% in local currency.

The results, although benefiting from non-recurring items in both periods, reflect growth in bank distribution and developed markets, and the positive effect of in-force initiatives in the Global Life back-books being managed for value.

The ongoing focus on fee-based and protection business has delivered an underlying improvement in loadings and fees, as well as in the technical margin. Loadings and fees fell 6% in U.S. dollar terms but were up 8% in local currency, while the technical margin improved by 23% in U.S. dollar terms. These were partly offset by a lower investment margin.

Farmers BOP declined 5% to USD 719 million as a reduction in revenues and slightly higher costs at Farmers Management Services offset an improved result at Farmers Re.

Gross written premiums at the Farmers Exchanges, which are owned by their policyholders and managed by Farmers Group Inc., a wholly owned subsidiary of the Group, increased by about 2%. Growth in most books of business more than compensated for a decline in earnings from businesses being managed for value and Direct Auto and Business Insurance sold through independent agents.

The Non-Core Businesses, which comprise run-off portfolios that are managed with the intention of proactively reducing risk and releasing capital, reported a business operating profit of USD 10 million, compared to a profit of USD 2 million in the prior year, largely due to one-off items in the prior year.

In Other Operating Businesses, the holding and financing business operating loss fell by USD 122 million to USD 330 million, primarily due to favorable currency movements and lower interest expenses on debt refinanced in 2014 and 2015.

The net investment result on Group investments, which includes net investment income, realized capital gains and losses and impairments, contributed USD 4 billion to the Group's total revenues for the six months ended June 30, 2015, a net return of 2.0% (not annualized). Total return on Group investments, which in addition to the net investment result includes changes in unrealized gains/(losses) reported in shareholder's equity on investments classified as 'available-for-sale' and cash flow hedges, was 0.1% (not annualized), compared with 4.8% in the same period of 2014. This was largely driven by rising yields and widening credit spreads. Read the full story Zurich reports business operating profit of USD 2.2 billion for the first half of 2015
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