Turnaround – Zurich Reports $701 Million Q3 Net; $1.4 Billion First 9 Months

Swiss-based Zurich Financial Services (ZFS) reasserted its position as Europe’s third largest insurer with a strong third quarter performance. ZFS posted net profits of $701 million, compared to a net loss of $763 million for the same period in 2002.

What a difference a year makes. After posting a record $3.4 billion loss last year, ZFS reported a $1.402 billion net profit for the first nine months of 2003. The results are a strong endorsement of the business plan implemented by CEO James J. Schiro when he took over the company in May 2002. A former senior manager with PricewaterhouseCoopers, Schiro lost no time in jettisoning non-core and non-performing units, reducing ZFS’ equity exposures and cutting costs.

Commenting on the results in a written statement, he observed: “These results demonstrate that Zurich has come a long way over the last year. Having generated a net income of USD 1.4 billion in the first nine months, we are now able to deal with adverse developments from a position of operational and financial strength. Going forward, our challenge is to maintain the momentum and further develop our framework for sustainable and profitable growth. We are well positioned to do so, and I am confident that we will continue to make good progress.”

The earnings highlighted the following:
— Net income increased to $1.402 billion for the first nine months of 2003 from a net loss of $2.792 billion in the same period in 2002
— Business Operating Profit increased to $1.471 billion for the first nine months of 2003 from $490 million in the same period of 2002
— Premium growth in Non-life Insurance of 26 percent, to $27.8 billion, over the first three-quarters of 2002. Combined ratio at 98.2 percent for the first three quarters of 2003, an improvement of 16.6 percentage points over the same period of 2002
— Growth in Life Insurance premiums and deposits of 9 percent to $15 billion while new business premiums (APE) increased to $1.554 billion in the first nine months of 2003
— Centre impacted net income as it incurred a net loss of $ 831 million in the first nine months of 2003, which included a net loss of $488 million in the third quarter. [Centre is ZFS’ niche financial services unit]
— Total shareholders’ equity of $18.3 billion, up from $16.8 billion at December 31, 2002, but down from $18.7 billion at June 30, 2003

“The first three quarters of 2003 have benefited from improved claims and expense management in our core businesses, firm rates in most non-life markets and the modest recovery in the global equity markets. Net investment income in the first three quarters of 2003 increased by 13 percent over the same period of 2002 to USD 5.2 billion,” said the bulletin. “This corresponds to a total return of 3.7 percent on assets, an increase of 2.9 percentage points over the return in the same period of 2002. Business operating profit, Zurich’s internal metric for assessing underlying performance, increased by 200 percent over the first nine months of 2002 to USD 1,471 million for the same period of 2003.”

The statement noted that “gross written premiums and policy fees in the three months ended September 30, 2003 are lower than for the three month periods ending June 30, 2003 and March 31, 2003 reflecting the trend noted at the half-year 2003 that rate increases are beginning to moderate in certain lines, normal seasonality and the impact of divestments throughout 2003.”

ZFS said that its “premium growth over the prior year was recorded in each of Zurich’s regions, and was primarily driven by rate increases in our key markets as well as volume increases at North America Consumer associated with the quota share treaties entered into with the Farmers P&C Group Companies on December 31, 2002. The rate increases have, in general, been higher on Zurich’s corporate and commercial lines of business than its personal lines of business.”

The management fees and related revenue ZFS receives from its Farmers Management Services unit increased by 5 percent from $1.3 billion to $1.4 billion. “This increase primarily resulted from higher premium volumes in the Farmers P&C Group Companies, which Zurich manages, but does not own,” said the announcement. “In the first three quarters of 2003, these premiums were USD 10.5 billion as compared with USD 10.4 billion in the same period of 2002. This premium growth is largely attributable to rate increases implemented throughout 2002 and early 2003. As a result of higher management fee income and related revenue along with improved operating efficiencies, the Farmers Management Services segment recorded an increase in its operating margin to 54.9 percent for the first three-quarters of 2003. Business operating profit grew by 13percent, or USD 86 million to USD 772 million in the first nine months of 2003.”