11 February 2016 Insurance

Zurich commits to ‘rigorous action’ after profits plummet in 2015

Profits at insurer Zurich plummeted in 2015 due to restructuring costs and poor results in its general insurance sector. But its CEO said it is taking rigorous action to improve profitability.

The insurer reported a net income of $1.84 billion last year, compared with $3.94 billion the previous year.

Its gross written premiums (GWP) also shrank in some areas. For its general insurance sector GWP and policy fees fell by $2.3 billion last year to $34 billion, but were up 3 percent on a local currency basis, the company said.

Zurich said that this reflected organic growth and an increase in new business through captives in North America commercial. The combined ratio for Zurich’s general insurance sector reached 103.6 percent last year, compared to 96.8 percent in 2014.

In its global life sector, gross written premiums, policy fees and insurance deposits fell by 9 percent last year to $29 billion, compared with $31.9 billion in 2014. However Zurich said it rose 6 percent in local currency, in part due to increased sales of individual savings products in Italy and Spain, and of protection products through Zurich Santander in Latin America.

Gross written premiums and policy fees at Farmers Re also fell by 37 percent last year to $2.15 billion, compared with $3.43 billion in 2014. An increase in auto claims costs across the industry negatively affected the combined ratio of both the Farmers Exchanges and Farmers Re.

Zurich also saw a fall of 6.9 points to its total return on Group investments last year, down to 1.7 percent, compared with 8.6 percent in 2014.

Tom de Swaan, chairman and chief executive officer ad interim, Zurich, acknowledged the poor results.

“This is a disappointing result, reflecting the previously announced challenges in our general insurance business and restructuring charges, and we have taken rigorous actions to improve profitability,” he said.

“This includes re-underwriting or exiting unprofitable portfolios, increasing cost efficiency and further simplifying the organisation. The remainder of the Group continues to perform well, with both Global Life and Farmers making further progress in the execution of their strategies.”

De Swaan also said that Zurich has accelerated its efficiency programme and now aims to exceed the previously communicated cost savings target for 2016 of $ 300 million. He said Zurich is on its way to achieving group-wide cost savings of more than $ 1 billion by the end of 2018.

“These savings will be achieved through the application of new technology, lean processes and the offshoring and near shoring of some activities,” said De Swaan.

“We estimate that as a result of these necessary measures around 8000 roles across Zurich will be affected by the end of 2018. This figure includes initiatives completed or announced in 2015.”

De Swaan added that a key priority for 2016 will be turning around the General Insurance business and continuing actions to position the Group for 2017 and beyond, including enhancing efficiency and sharpening the Group’s retail footprint.

“We have an excellent management team in place that will be further strengthened with the arrival of Mario Greco, who will lead preparations for the new strategic cycle,” he said.

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