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Investment Losses and Write-downs Result in Profit Decline of 87% for Zurich

Posted on 05 Feb 2009

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Switzerland's biggest insurer, Zurich Financial Services AG, said fourth-quarter profit fell 87 percent following write-downs and losses on investments.

Zurich said that its net income declined to $205 million from $1.53 billion a year earlier. The company plans to cut the gross dividend to 11 Swiss francs per share from 15 francs paid for 2007.

Zurich said it’s doubling the target for cost cuts this year to $400 million after profit was hurt by $1.1 billion in markdowns on stocks, bonds and hedge funds last quarter. Swiss Reinsurance Co., the second-biggest reinsurer, said today it plans to raise as much as $4.3 billion from investors including Warren Buffett to shore up capital.

“Zurich’s capital position is very solid and the dividend payout should signal some confidence,” said James Shuck, an analyst at Jefferies in London with a “buy” rating on the stock. The “shares are weak today because of the fallout across the sector.”

No Improvements

“We do not see significant improvements in the economic environment in the near term,” Chief Executive Officer James Schiro said in the statement. “But our strong balance sheet, operational capabilities and well-balanced portfolio of businesses position us well to continue executing on our strategy.”

Schiro, who is scheduled to step down at the end of this year, has said he aims to add $900 million to profit through better underwriting and cost savings over each of the next three years in a bid to battle the global economic crisis. That figure does not include the additional costs savings announced today.

The insurer’s capital position “remains strong” with a solvency ratio after the proposed dividend payout of 153 percent at the end of last year, Chief Financial Officer Dieter Wemmer said. Zurich, which made at least eight acquisitions last year, including a stake in Banco Sabadell SA’s insurance units, has now “mainly organic” opportunities to grow, Wemmer said. Investment Losses

Zurich Financial wrote down $700 million on equity investments in the final three months of last year, with the rest of the markdowns on debt securities, hedge funds movements and private equity investments. It may book losses of around $100 million on stock investments in each of the next two quarters, based on market prices at the end of 2008, Wemmer said in an interview.

Zurich Financial was hurt by writedowns and impairments of $2.9 billion over the year on equity and debt, including losses following the default of Sigma Finance Corp., Lehman Brothers Holdings Inc. and Washington Mutual Inc.