Zurich Insurance reports record operating profit as pricing momentum slows

Investing.com -- Zurich Insurance Group (SIX:ZURN) on Thursday posted a record operating profit in the latest quarter, but a slowdown in premium rate increases and a miss on net income highlighted signs of moderating momentum across its operations.

The Swiss-based insurer reported a 6% increase in business operating profit, coming in 2% ahead of consensus. 

“We find our enthusiasm tempered by the fact that consensus already appreciates this,” said analysts at Jefferies in a note.

The company also delivered a return on equity of 26.3%, which remains at the top end of industry performance. 

However, net income missed expectations by 2%, and equity came in 0.9% below consensus.

While the overall profit result exceeded forecasts, the rate of premium increases slowed from 4% to 3%. 

This decline came during a period when claims inflation has not shown similar easing. The deceleration occurred despite an expected catch-up in pricing in the European retail segment.

The property and casualty business delivered a 3% beat on operating profit. The combined ratio outperformed expectations by 0.8 percentage points, and the loss ratio exceeded by 2.1 percentage points. Revenue was 1.5% ahead of consensus. 

Reserve releases provided a modest tailwind, while catastrophe-related losses were 0.8 percentage points less than forecasted. The expense ratio underperformed by 1.3 percentage points.

In the life segment, operating profit fell 5.1% below estimates. The release from the contractual service margin was broadly in line, while the short-term life business exceeded expectations with a 7.5% beat. The net investment result for life missed by 1.4%.

Zurich’s Farmers business showed mixed results. Operating profit for the division was 2.4% above expectations. 

Within the segment, Farmers Reinsurance delivered the most substantial surprise, beating forecasts by 97.9%. Farmers Management Services reported a 0.9% miss.

Capital strength remained in line with prior expectations. The Swiss Solvency Test ratio stood at 255%, unchanged from prior periods and consistent with the consensus median. 

Despite the strong capital position, further upside from capital deployment was not apparent in the return metrics.