The Swiss insurer’s Q3 pretax profits will take a serious hit after coverage funding issues.
Zurich Insurance Group, a Switzerland based insurer, has released its latest insurance news, which shows that its profits in Germany will be slammed by $550 million, pretax in the third quarter.
This was the result of the insurer’s failure to put aside enough money to cover certain claims.
Specifically it did not have the cash ready to cover the potential claims that occurred several years following the expiry of the policies. The insurer also stated in its insurance news release that the harm to its profits also had to do with deferred cost write offs from new business acquisitions. It did not provide any details regarding that particular statement.
This insurance news primarily involved long term illness as well as medical negligence.
Claims of this nature are often made long after the event actually occurred. It is typical for insurers to set money aside in order to cover these “long tail” liabilities once they become insurance news.
The result of this insurance news has been an unfortunate hit to their financial performance this quarter, as well as to the reputation of Zurich. The hopes in the industry were that the company’s issues with reserves had become history, as the firm had become recognized for its strong efforts to bolster itself against potential future liabilities.
The magnitude of the news is one that will cause many to raise a brow, but it is hoped that this will not lead to a challenge to the dividend. The outcome, when all is said and done, should still be a positive operating profit for the third quarter of 2012.
Following the release of the headlines, the shares at Zurich had dropped by 4 percent to 234.6 Swiss francs, as the company showed an underperformance that was a touch weaker than the Stoxx Europe insurers index (SXIP). However, the firm also released a statement that showed that there would be adjustments that would be made to the total, and that after taxes, the impact will be decreased to $390 million.