The FINANCIAL -- Zurich Insurance Group (Zurich) on May 12 reported a business operating profit (BOP) of USD 1.1 billion and net income attributable to shareholders (NIAS) of USD 875 million for the three months ended March 31, 2016.
“While it is still early in the process, these results show that the measures we put in place to improve the performance of our General Insurance business are taking effect,” said Chief Financial Officer George Quinn. “Even adjusting for a benign catastrophe claims environment, there has been an underlying improvement and we expect to see this trend continue throughout the year.”
“The rest of the Group continues to perform well, with solid underlying growth at Global Life and in continuing operations of the Farmers Exchanges4. Zurich remains very strongly capitalized with solvency well within our target range.”
General Insurance reported a BOP of USD 542 million for the first three months of 2016, down 23% from the prior year period but a significant improvement on an operating loss of USD 120 million in the previous quarter. The combined ratio of 97.7% for the first three months of 2016 was significantly better than the 103.6% combined ratio for the full year 2015 and one percentage point higher than in the same period in the previous year, according to Zurich.
Gross written premiums declined 5% in local currency or 10% in U.S. dollar terms, largely due to re-underwriting and de-risking actions to improve performance announced last year. At the same time, these initiatives contributed to rate increases on renewal business of 3% in the quarter and an improvement in the accident year loss ratio ex-catastrophes to 66.5% in the period, from 69.5% in the previous quarter. It is expected that further benefits from these and other measures to reduce costs will continue to flow through to results towards the latter half of this year.
Global Life BOP for the first three months of 2016 was USD 317 million, little changed in U.S. dollar terms compared to the same period in 2015 but up 11 percent on a local currency basis, helped by a strong performance from Zurich Santander and gains from accelerated in-force management initiatives in EMEA. Zurich Santander earnings increased by 29% in local currency, while in Asia Pacific BOP increased 61% in local currency due to favorable claims experience in Australia and strong protection growth in Japan.
Gross written premiums, policy fees and insurance deposits were largely unchanged at USD 7.4 billion, with increases in EMEA offset by volume decreases in Latin America. New business value increased 34% in local currency year on year, driven by a 7.8 percentage point increase in new business margin compared to the prior year period.
Farmers BOP was down 12% at USD 343 million as Farmers Re reported a small loss for the period due to significant catastrophe losses at the Farmers Exchanges4. These included more than USD 250 million in claims related to two hailstorms that struck the Dallas/Fort Worth area of north Texas on March 16 and 24.
Business operating profits at Farmers Management Services were 5% higher at USD 347 million, mainly driven by higher management fees as the positive growth trend at the Farmers Exchanges4 continued. Farmers Management Services’ managed gross earned premium margin was unchanged at 7.0%.
The Non-Core Businesses, which comprise run-off portfolios that are managed with the intention of proactively reducing risk and releasing capital, reported a BOP of USD 24 million, little changed from the prior year period.
In Other Operating Businesses, the operating loss of USD 139 million, slightly improved compared with the prior year period due to timing effects in marketing and other spend and a decrease in interest expenses related to a lower amount of debt outstanding.
The net investment result on Group investments, which includes net investment income, realized net capital gains and losses and impairments, contributed USD 1.7 billion to the Group's total revenues for the first three months of 2016, a net return of 0.9% (not annualized). This compares to USD 2.1 billion for the first three months of 2015. Total return on Group investments was 2.7% (not annualized), compared with 2.6% in the prior year period, mainly driven by a strong performance in the fixed income portfolio as a result of falling yields.
The Group maintained its very strong capital position. As of January 1, 2016, the Group’s solvency, as determined under the Swiss Solvency Test (SST)5 stood at 189%, while the Zurich- Economic Capital Model (Z-ECM) ratio stood at 121%, which is slightly above the target range. At the end of the first quarter of 2016, the estimated Z-ECM stood at around 110%, well within target range and slightly down from year end because of financial market movements and the inclusion of Rural Community Insurance Services (RCIS).
Shareholders’ equity declined by 1% to USD 30.9 billion as the 2015 dividend of CHF 17.00 per share approved by shareholders at the Annual General Meeting on March 30, 2016, was recognized through shareholders’ equity in the first three months of 2016.