The FINANCIAL -- Zurich Insurance Group (Zurich) on November 5 reported a business operating profit (BOP) of USD 2.5 billion and net income attributable to shareholders (NIAS) of USD 2.3 billion for the nine months ended September 30, 2015.
“These results are in line with the preliminary update that we released in September in response to the underperformance in parts of our General Insurance business,” said Chief Executive Officer Martin Senn. “A comprehensive review of the business has led to an action plan to improve performance, reduce volatility and deliver a rapid recovery in profitability. This includes the reshaping of the management team, re-underwriting and exit of underperforming portfolios and additional measures to improve efficiency.”
“Global Life and Farmers continue to perform in line with expectations and Zurich remains well capitalized and profitable.”
General Insurance reported a BOP of USD 983 million for the first nine months and a business operating loss of USD 183 million for the discrete third quarter. The combined ratio for the nine months deteriorated from 96.0% to 101.9%. As reported on September 21, 2015, this result was due to a number of factors including a USD 275 million loss related to the explosions in Tianjin and other large losses, as well as adverse claims experience and negative prior year development in certain portfolios, according to Zurich.
The review of the business is on track, with actions already being implemented to address underlying performance issues. The business is exploring options to reduce earnings volatility through the use of reinsurance and other measures, and is re-underwriting, re-pricing or exiting a number of underperforming portfolios. Additional cost savings are being implemented, while further measures are being taken to sharpen the business focus and streamline governance and organization.
Collectively, these initiatives are designed to reinforce underwriting discipline, reduce large losses and improve efficiency.
Global Life BOP for the nine months was USD 1 billion and USD 328 million for the discrete quarter, benefiting from lower central costs, the positive effect of in-force initiatives and certain reserve re-estimations. Both BOP and new business sales increased by 18% on a constant currency basis for the nine month period. Gross written premiums, policy fees and insurance deposits remained stable at USD 21.3 billion.
Farmers BOP was down 7% at USD 1.1 billion for the nine months, largely due to a reduction in investment income and a higher combined ratio at Farmers Re. Management fees and other related revenues at Farmers Management Services were unchanged from the prior year period at USD 2.1 billion. The positive growth trend at the Farmers Exchanges, which are owned by their policyholders and managed by Farmers Group Inc., a wholly owned subsidiary of the Group, continued.
The Non-Core Businesses, which comprise run-off portfolios that are managed with the intention of proactively reducing risk and releasing capital, reported a business operating loss of USD 12 million, compared to a loss of USD 85 million in the prior year, mainly due to a one-off reserve strengthening in 2014.
In Other Operating Businesses, the holding and financing business operating loss narrowed by USD 125 million to USD 549 million, which was largely due to lower refinancing costs and one-off currency gains.
Group investments, which includes net investment income, realized net capital gains and losses and impairments, contributed USD 6.0 billion to the Group's total revenues for the nine months ended September 30, 2015, a net return of 3.0% (not annualized). Total return on Group investments was 1.2% (not annualized), compared with 6.4% in the same period of 2014.
The Group maintained its very strong capital position. At the half year, the Group’s solvency, as determined under the Swiss Solvency Test (SST)4 stood at 203% and the Zurich-Economic Capital Model (Z-ECM) 4 ratio stood at 123%. The Group will set out how the projected USD 3 billion of excess capital will be allocated between organic or inorganic investments and cash returns to investors, beyond the ordinary dividend, with the full year results in February 2016.