Zurich Insurance posted net income of $1.6 billion for the first half, down by 22 percent on-year, but the head of the company told CNBC he was pleased with the numbers, which surpassed expectations.
The company reported a net income of $739 million in the second quarter, down 12 percent on-year but better than the $701 million forecast in a Reuters poll of analysts.
The insurer said that the 22 percent fall in first-half net income was due to “a lower level of realized capital gains, restructuring charges related to the group’s turnaround plans and a higher effective tax rate.”
Chief Executive Mario Greco told CNBC on Thursday that the company was “pleased with the numbers” and that a $1 billion cost-reduction program (to be achieved by 2018) was taking effect.
“We’re confident that the actions that we have been taking are bearing fruit and we look with more confidence into the second half of the year.”
“There is definitely a cost issue in the insurance industry and Zurich is not outside of these issues so our target of $1 billion is something that we have to achieve, and we’re looking at ways that we can exceed that target.”
Cost reductions were to be achieved by simplifying the business, which would enable the company to become more competitive and efficient, he said.
Diluted earnings per share for the six months to June 30 came in at $10.75, and business operating profit (BOP) down 2 percent at almost $2.2 billion.
General insurance BOP was up 3 percent at $1.2 billion in the first half, while the combined ration, a measure of profitability for that business, was flat on-year.
Zurich said that second-quarter BOP was up 17 percent at $1.1 billion.
Risks and rewards
In the group’s earnings statement, Greco said that the company’s efficiency drive was beginning to deliver results and that the insurer had “taken steps to strengthen our geographic footprint by enhancing our position in the U.S., Malaysia and Australia while exiting several positions where we saw limited potential,” referring to the company’s previous announcement that it was to exit the general insurance business in the Middle East and the life business in Singapore.
Greco said that the company had decided to step out of markets “which were not critical for the rest of our business.”
“Wherever we feel that this is not a place where we can throw capital, where we can throw resources, where we can commit Zurich resources there, we’ll look for opportunities to exit their markets.”
The company’s life business has been particularly hit by volatility in markets as well as low returns.
Greco said that the “life market is of course hit by these very extreme financial conditions” but that the company was “quite safe.”
“We feel, I cannot say good but we feel quite safe even in these market conditions. I think the financial authorities are trying to do their best to revamp the world economies. The issue there is that the restart of the world economies cannot just be on their backs and it also needs fiscal policies, political actions which have been not effective so far.”