Zurich Financial Services on the road to recovery

Zurich is recovering after two years of big losses Keystone

Zurich Financial Services has posted a first-half net gain of $701 million (SFr973 million), fuelling hopes that Europe's third largest insurer may turn a profit in 2003.

The result was well above market expectations and indicates Zurich may be recovering from last year’s bruising $3.4 billion loss.

Jim Schiro, the Zurich chief executive who was appointed to the job in May last year, welcomed the result.

“I’m excited by this recovery, but we have a long road ahead. I see us facing challenges,” Schiro said.

ZFS’s profit has come thanks to improvements in global equity markets, as well as an ambitious cost-cutting programme launched by Schiro’s management team last year.

The company hopes to save around $1 billion by slashing more than 4,000 of its 64,000-strong workforce and better utilising its reinsurance businesses.

Chasing a billion in cash

Schiro said he was determined to raise another $1 billion in cash through asset sales – a target he said was already well within reach.

“We have announced a number of divestments that upon completion will release more than one billion dollars of risk-based capital,” he said.

The largest of these is Zurich’s sale of the UK asset manager Threadneedle to American Express.

Operating profit (before taxes and interest payments) rose by 56 per cent to $1.3 billion during the first half of the year.

Cash flow has also surged, up 25 per cent to $4.5 billion.

Achilles heel?

However, some analysts expressed concerns about Zurich’s loss-making Centre unit – which specialises in complex insurance deals for other insurers and companies.

Centre recorded a business operating loss of $463 million during the first half, up from $102 million for the same period last year.

Zurich has also benefited from $800 million in currency gains thanks to a fall in the value of the US dollar, while profits from buoyant bond markets helped negate losses to the group’s equity portfolio.

swissinfo with agencies