Analysts Say Zurich in Good Shape Despite Writedown

October 3, 2008

Some analysts cut their ratings on Zurich Financial Services AG on Friday after it wrote down $615 million worth of investments, but said the Swiss insurer was still in relatively good shape.

Until now, Europe’s fifth-largest insurer by market value had managed to weather difficult financial markets as well as competitive insurance markets, where prices are dropping.

But Zurich said late on Thursday it would write down $275 million due to the notice of default of Sigma Finance, $295 million on its previously announced exposure to Lehman Brothers and a further $45 million related to Washington Mutual’s debt instruments.

Viktor Dammann, analyst at Swiss bank Vontobel, cut his rating on Zurich to “hold” from “buy” and reduced 2008 and 2009 earnings per share estimates by 10 percent.

“We nevertheless consider ZFS to be one of the best-managed insurance companies in our universe but we do not believe that it can sail against the wind,” Dammann said in a note.

By 1130 GMT, Zurich shares were down 3.4 percent at 284.50 Swiss francs, against a 1.8 percent rise in the European insurance index.

Sal Oppenheim also cut its target on the stock, to 430 Swiss francs from 350.

The fact Zurich has so far had no huge exposure to a single name shows its asset positions are well diversified, said Landsbanki Kepler analyst Fabrizio Croce, who maintained his “Buy” rating.

“Even if we continue to see hits, it’s difficult to imagine one of these severely hurting ZFS,” Croce said in a note. “We continue to see ZFS as a top pick in the sector and one of the major winners of the AIG bailout.”

Rainer Skierka, an analyst at wealth manager Sarasin, reiterated his “Buy” rating, saying that while the writedown was “unpleasant news”, the total had to be seen in the context of an otherwise well-diversified portfolio.

“Although we expect a temporary negative market reaction on the news, we see no reason to lower our rating,” Skierka said.

(Editing by Paul Bolding, Jon Loades-Carter and Hans Peters)

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