Insurance giant reports unexpected fourth-quarter increase

Zurich Insurance Building in LeedsZurich Financial Services AG, the largest insurer in Switzerland, has reported that its fourth-quarter profit showed little change despite major catastrophes in Australia. Analysts estimated that the net income for the insurer would come in at $1.02 billion, but Zurich is reporting an income of $1.04 billion. Zurich is planning to save more than $500 million over the next three years by making cuts to its general insurance business.

The Australian floods have taken a heavy toll on the insurer, raising the combined ratio, a key measure of profitability, to 98.3%. A ratio of over 100% means that the insurer’s costs outstrip income from premiums. The rise in ratio is attributed to Zurich lowering its premiums on coverage the year before. The large amount of claims coming from Australia was almost too much for the insurer.

Chief Executive Officer, Martin Senn, said that the company is focused on protecting its profit margins through carefully targeted re-underwriting actions.

The earthquake in Chile last February prompted Zurich to revise its estimated pretax losses from $200 million to $175 million. The Australian floods are likely to push the insurer to again revise its estimates for its 2010 pretax loss as the flooding is likely more severe than previous events in Australia.

Zurich finds itself in a precarious position as it finds itself embroiled in a general insurance price war in the UK, Italy and Germany as well as just having settled a $455 million class action suit in the U.S. relating to its Farmers Group.

Zurich reports that both net income and operating profit fell by 13%.

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