Zurich misses estimates as earnings drop 43%

Zurich Insurance Group, the Swiss firm considering a bid for the UK's RSA Insurance Group, reported profit that missed analysts estimates as earnings dropped 43 per cent at the general insurance unit and it made a loss on unit-linked investments.

Net income in the second quarter fell to $840 million from $848 million a year earlier, Switzerland’s largest insurer said in a statement on Thursday.

"The profitability of our general insurance business was adversely affected by large losses, particularly within global corporate and the UK, and a higher expense ratio," chief executive officer Martin Senn said in the statement. "The positive trend in global life and Farmers has continued, with these businesses delivering good results."

Senn, who is weighing a bid for RSA that would increase Zurich’s market share in the UK and Scandinavia, has also sold businesses and improved efficiency as insurers struggle with low interest rates and pressure on prices. In May, he announced Zurich would cut costs by an annual $1 billion by the end of 2018. The return on equity based on operating profit after tax dropped to 10.2 per cent from 11.4 per cent a year ago.

Zurich's takeover of RSA would be the biggest in Senn's tenure and could herald a possible revival in mergers among European insurers, crimped by tighter regulation and the debt crisis. Senn may face competition from rivals including Allianz SE, Europe's biggest insurer.

“We believe that a transaction could bring significant benefits to us and to our investors,” Senn said. “In terms of the complementary fit of RSA’s business with our own operations, and in terms of financial benefits from, for example, expense and other synergies,” he said.

Senn is in the process of raising more than $4 billion to finance a possible purchase of RSA, people familiar with the matter said last week. The firm reiterated in May that it had $3 billion in cash to use for acquisitions or to return to shareholders.

Bloomberg