Zurich Posts $154 Million Q3 Net Profit; $2.8 Billion for 9 Months

November 13, 2008

Zurich Financial Services Group managed to report net after tax profits for the this quarter of 2008 of $154 million, despite what it described as “the impact of particularly adverse circumstances during the third quarter, including net capital losses for shareholders of $1.1 billion and catastrophe losses attributable to hurricanes Gustav and Ike in the US of $595 million.”

Zurich said that all of its “core business segments delivered solid operating performances and continued selective growth in attractive business lines, the Group’s business operating profit post-tax return on equity continued to remain above its mid-term target of 16 percent.”

Zurich summarized its Nine-month performance as follows:
— Business operating profit (BOP) of $4.2 billion, a decrease of 15 percent. Annualized BOP ROE after tax of 16.4 percent
— Net income of $2.8 billion, a decrease of 32 percent. Annualized return on equity (ROE) of 14.5 percent
— General Insurance gross written premiums and policy fees of $29.2 billion, up 7 percent or 1 percent in local currencies, and a combined ratio of 98.7 percent, with hurricanes Gustav and Ike accounting for 2.4 points
— Global Life new business value, after tax, up 6 percent to $511 million, with new business margin, after tax (as percent of APE), of 22.4 percent and APE up 14 percent or 9 percent in local currencies
— Farmers Management Services’ management fees and other related revenues up 9 percent to $1.8 billion
— Shareholders’ equity of $23.9 billion, a decrease of 17 percent over year end, largely due to unrealized losses.

CEO James J. Schiro commented: “In the face of such turbulent times, I am particularly pleased in our ability to deliver continued profits and maintain our high solvency ratio.

“These results illustrate the value of our disciplined approach to risk, the strength of our balance sheet and the resilience of our global book of businesses. Looking forward, we see an improving general insurance environment and continued opportunities across all our businesses, leaving us confident in our ability to generate consistent shareholder value.”

Zurich added that from a “discrete third quarter perspective, the Group achieved a business operating profit of $636 million and net income after tax of $154 million, despite not applying accounting treatments (i.e. the amendments to the IAS 39 accounting rule as endorsed by the International Accounting Standards Board) that would have permitted the reclassification of certain trading assets.”

The report noted that “Farmers’ management fees and other related revenues grew by 9 percent to $1.8 billion, as the Farmers Exchanges, which Zurich manages but does not own, delivered 6 percent premium growth in the first nine months of 2008 despite flat market conditions.

“The gross management result improved by 7 percent, maintaining the managed gross earned premium margin unchanged at 7.1 percent. Business operating profit decreased 9 percent to $919 million, largely driven by lower investment income as a result of markedly higher dividends and cash transfers to the Corporate Center, reflecting the Group’s disciplined capital management strategy.

“The Exchanges’ strong growth was driven in part by continuing the successful rollout of Bristol West’s products throughout the Exchanges’ distribution platform, with Bristol West’s premiums growing strongly by 25 percent, and further progression in the transfer of North America Commercial’s Small Business Solutions book.

“Farmers also continues to make investments to further support profitable growth by distribution and products through various initiatives such as growing the Exchanges’ increasingly productive tied-agent sales force, focusing on growing ethnic customer groups as well as targeting growth in the independent agency channel in the Eastern United States.”

The full report, additional information and a replay of today’s audio web cast may be obtained on the Group’s web site at: www.zurich.com.

Source: Zurich Financial Services

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