Canadian Underwriter

Zurich reports business operating profit of US$4.5 billion for 2016, up 55% from prior-year period

February 10, 2017   by Canadian Underwriter

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Zurich Insurance Group has reported a business operating profit (BOP) for the full-year ending Dec. 31, 2016 of US$4.5 billion, up 55% from the prior-year period.

The fourth quarter BOP for the three months ending Dec. 31, 2016 was up 167% from Q4 2015 to US$1.1 billion, Zurich said in a press release on Thursday. Net income after tax attributable to shareholders (NIAS) was US$3.2 billion for the full year 2016, up 74% from US$1.8 billion in 2015, driven by improved profitability in General Insurance and continued growth in Global Life and Farmers. The fourth quarter NIAS for 2016 improved to US$685 million from a loss of US$424 million in Q4 2015.

“We are very pleased with our results for 2016,” said Zurich Group chief executive officer Mario Greco in the release. “Both Global Life and Farmers continued to grow well, while General Insurance benefited from a stronger underlying performance across all regions.”

Overall, the Global Corporate combined ratio was 104.2% in 2016, down 9.7 points from 113.9% in 2016. North America Commercial’s combined ratio was 96.1% in 2016, compared with 98.2% in 2015, the financial results showed.

By segment, General Insurance (GI) increased by US$1.6 billion to US$2.4 billion in 2016, or 182% in U.S. dollar terms and 199% on a local currency basis, reflecting a US$1.4 billion “improvement in net underwriting result across all regions.” GI gross written premiums and policy fees (GWP) decreased by US$0.9 billion to US$33.1 billion, or 3% in U.S. dollar terms and flat in local currency terms. The decrease was largely due to the ongoing focus on profitability and measures to ensure the right geographic footprint, including exiting markets in South Africa and Morocco, the release noted. RCIS, a provider of agricultural insurance in the United States acquired during the year, performed well while actions to enhance the profitability of the business and a benign claims environment contributed to the strengthening of the combined ratio by 5.1 percentage points to 98.4%.

Farmers’ BOP increased 7% to US$1.5 billion last year, with a strong performance from Farmers Management Services. This offset lower earnings from Farmers Re. BOP at Farmers Management Services was 9% higher at US$1.5 billion. The growth in gross earned premiums of the Farmers Exchanges lifted management fees and other related revenues at Farmers Management Services by 3% to US$2.9 billion, while the managed gross earned premium margin was marginally lower at 7%, the release said, adding that a gain of US$86 million related to changes in the pension plans was also recorded.

Farmers Re BOP declined by US$19 million to US$42 million, largely due to natural catastrophe losses and lower investment income, Zurich reported. Gross written premiums and policy fees decreased 26% to US$1.6 billion due to the lower quota share reinsurance assumed from the Farmers Exchanges.

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 US$11 million compared with a profit of US$51 million in the prior year. “The movement is explained by the release of long-term reserves in 2015 as a consequence of a buy-back program for a variable annuity product in the U.S.,” Zurich said.

Other Operating Businesses recorded a business operating loss for the year of US$758 million, compared to a loss of US$720 million in the prior0year period. This was primarily due to less favourable foreign exchange developments.

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