Zurich Insurance Group’s third-quarter profits will take a $550m pre-tax hit, after Switzerland’s largest insurer by premiums was forced to boost claims provisions and make writedowns following a review of its German business.

Zurich began the review in 2011 following a string of unexpected charges in the division and has concluded that it needs to set aside more money to deal with claims, in particular in areas of business with long-tail liabilities.

These typically involve insurance provided over long periods against medical malpractice or negligence by architects and engineers. Claims in such cases can take many years to settle.

The group will also write off a proportion of its deferred acquisition costs. It said the post-tax impact of the two measures would run to $390m.

The news sent shares in the company down 2.7 per cent to close at SFr237.60 on Wednesday and prompted analysts at Bank Vontobel and Bank Sarasin to cut their buy ratings for the shares to neutral.

Since 2010, Zurich’s German business has racked up nearly $1bn in extra charges, and Spencer Horgan, an analyst at Deutsche Bank, said the size of the latest charge represented an attempt to deal conclusively with the problem.

“They’ve been struggling with these two lines of business for a while now…so at some point they needed to try and draw a line under the issue. If they have now done so, that is all well and good, but there is a question as to why they have not been able to get to grips with this sooner,” he said.

“By their nature, reserves for these business lines are complicated to estimate, but the cumulative impact of these charges over the years relative to the size of the business suggests that internally something has gone quite wrong,” he added.

Zurich said its leadership was “disappointed with this significant financial adjustment”, but the group was “confident” that it had now addressed the main issues surrounding long-tail lines of business.

“We have taken actions to improve the claims department’s methodology and process and also have improved the quality of data available for the actuarial process,” said the group.

Joy Ferneyhough, an analyst at Espirito Santo, said that the problems were “mainly specific to Zurich”.

“There is perhaps a general deterioration in this area of German business which might be of concern for Allianz or Munich Re, but not enough for investors to start pressing the panic buttons on those names,” she said.

Zurich will report its third-quarter results on November 15, and emphasised that its other lines of business were performing as expected.

In the second quarter, the group’s net profits came in at $1.08bn, while in the third quarter in 2011, it made $1.25bn.

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