Q2 profits dip but Zurich hails turnaround in underlying performance
Net profits at Zurich Insurance Group dipped in the second quarter of 2016 thanks to lower realised capital gains and restructuring charges. But company’s operating profits improved markedly and the firm’s chief executive hailed the impact of changes the business has made.
The company’s net profit in the second quarter fell to $739 million, a 12 percent decrease on the year before. For the first six months of the year, its net profit now stands at $1.6 billion, a 22 percent decrease no the same period in 2015.
It blamed a lower level of realized capital gains, restructuring charges related to the group’s turnaround plans and a higher effective tax rate.
In contrast, its business operating profit increased to $1.1 billion in the second quarter, a 17 percent increase on the same period the year before. For the six months ended June 30, 2016 it now stands at $2.2 billion, down 2 percent from the prior year period.
The business operating profit in its general insurance business increased by $40 million to reach $1.2 billion, up 3 percent in US dollar terms or 10 percent in local currency. The company said an improvement in the underlying result offset a decrease in the net investment result and a higher level of catastrophe and weather-related events. The result benefited from currency gains of $92 million.
Gross written premiums and policy fees (GWP) increased by 2 percent in local currency terms, boosted by the acquisition of RCIS, but fell by 1 percent in US dollar terms, largely due to the re-underwriting to improve performance announced last year.
Group chief executive officer Mario Greco said: “We have made significant progress over the last six months, with consistent improvement in our underlying performance in the second quarter, in the context of an ongoing challenging market environment.
“Reinvigorated underwriting discipline in General Insurance has resulted in an improved attritional loss ratio. Our efficiency programme is beginning to deliver results and we have taken steps to strengthen our geographic footprint by enhancing our position in the US, Malaysia and Australia while exiting several positions where we saw limited potential.
“Both Global Life and Farmers have continued the positive momentum of previous quarters. The capital position is resilient and cash remittances for the three years to end-2016 are still on track to exceed USD 10 billion. We are confident that by continuing our improvement actions, we will be able to deliver satisfactory returns to our shareholders in 2016 and in the following years.
“As we prepare for the next strategy cycle, we have already taken steps to simplify our management and operating structures, which will allow us to better serve our customers and respond more easily to external developments.”
During the period, Zurich completed the acquisition of Rural Community Insurance Services (RCIS), one of the biggest providers of crop insurance in the US, and MAA Takaful in Malaysia. It is in the process of acquiring Macquarie Group’s retail life insurance protection business in Australia.
The sales of the general insurance businesses in Taiwan and Morocco were announced in June, and the sale of its operations in South Africa and Botswana was announced in July as the Group continues to optimize its global footprint.
In June, the Group announced that it will adopt a simpler organization and management structure to make the company more agile and accountable while bringing management closer to customers.
