Zurich turnaround backed up by fourfold gain

Profits suggest that restructuring worked for ZFS Keystone

Switzerland’s biggest insurer, Zurich Financial Services (ZFS), has announced net profit of $702 million (SFr901 million) in the first quarter of 2004, four times as much as a year ago.

The company said the jump in profit was due to cost-cutting efforts, fewer big claims and steady investment income.

The result surpassed analysts’ expectations of a $650 million profit.

“The results reflect our continuing ability to manage our businesses with sound pricing and a tight grip on cost and expenses,” commented ZFS chief executive James Schiro.

Three months ago, ZFS announced a yearly net profit of $2 billion, after a record loss of $3 billion the year before.

Following its problems in 2002, the company slashed more than 4,500 jobs – almost ten per cent of the work force. Further divestments led to a total reduction of 8,000 jobs.

“The results are further confirmation of progress on restructuring,” said analyst Georg Marti at Zurich Cantonal Bank.

Back-to-back losses

Schiro brought the company out of the red in 2003, following back-to-back losses prompted by an expansion in banking just before the stock markets soured.

He raised non-life insurance premiums by 22 per cent, generating the bulk of profits. Even though life premiums fell, the ratio of company income to payouts improved 1.2 per cent.

Like many large insurers, ZFS – the world number two insurer – benefited from better investment markets.

But Schiro also attributed the positive picture to fewer big claims.

The company would not write business for the sake of gaining market share but be prudent in selecting profitable policies, he said.

“Our goal is to become prudent: when we see development, we book it.”

swissinfo with agencies

Key facts

ZFS reported net income of $702 million in the first quarter, an increase of 424%, year over year.
ZFS attributed profits to a drop in big claims, and to cost-cutting and steady income from investments.
There was a return on equity of 16.2%.
Premiums in non-life insurance, up 22%, generated the bulk of profits.
Total shareholders equity is $20.1 billion, up from 18.8 billion on Dec. 31, 2003.