Zurich Insurance Group said it could not rule out further writedowns at its troublesome German unit, as it reported a 62 per cent drop in net profits in the third quarter.
Since 2010, Switzerland’s largest insurer by premiums has racked up nearly $1bn in extra charges in Germany and the group warned in October that moves to boost claims provisions at the unit would take about $390m off net income in the third quarter.
As a result, Zurich’s net profit in the three months to the end of September came in at $477m – or SFr3.11 per share – down from $1.2bn a year earlier. Analysts had forecast net profits of $719m, according to a poll by Bloomberg.
Zurich is reviewing its German operations and although Pierre Wauthier, chief financial officer, said “the bulk of the problem” had been dealt with and was specific to Germany, he did not rule out further writedowns.
“Putting finality on anything in the insurance business, which by its very nature is uncertain, is difficult,” he said.
“Should there be any further developments, they would be much smaller.”
Total business volumes – which include written premiums, policy fees, insurance deposits and management fees – improved 5 per cent to $16.5bn, helped by robust performances in the US and Latin America.
Operating profits in the general insurance division, which accounts for more than half of Zurich’s business, were up 5 per cent, with the writedowns in Germany offset by a relative lack of natural disasters as well as improved underwriting and cost management. Zurich said it had pushed through average rate increases of 3.6 per cent.
By contrast, in the life insurance division, operating profits fell 5 per cent, as low interest rates depressed the group’s net investment margin. Zurich said it was adapting by shifting its product mix away from savings towards fee-based products.
Profits at the Farmers business suffered a 9 per cent decline, mainly because of underwriting losses caused by higher than expected weather damage.
Mr Wauthier said that the group remained well positioned to deal with the challenge of a low growth, low interest rate environment, but that it was too soon to gauge the impact of Hurricane Sandy on Zurich’s business.
“Clearly this is a big one, and it will have an impact on our results, but it’s far too early to give an indication of the cost.” he said, adding that Zurich had an agreement under which a syndicate of reinsurers would assume a percentage of any losses in excess of $500m.
“However, it’s far too early to say that we would even reach that limit,” he said, pointing out that Hurricane Irene cost the company $100m.
Shares in the company fell 3.96 per cent to SFr232.10 in early morning trading in Zürich.
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