Zurich’s P&C profits jump 38% as hardening market helps it successfully execute three-year turnaround plan

Zurich’s P&C operating profit jumped 38% to $2.88bn in 2019 with its combined ratio improving 1.4 percentage points to 96.4%, as price increases rose throughout the year. This helped the insurer exceed its three-year targets put in place to turn fortunes around and saw group operating profit rise by 16% last year to $5.3bn. Zurich’s P&C business saw gross written premiums increase by 2%, or 6% on a like-for-like basis, to $38.18bn in 2019. Its underwriting result rose to $922m from $574 and investment income was up 1% on a reported basis to $1.96bn. The unit also recorded favourable prior-year reserve development. Zurich said the improved underwriting performance and higher investment results more than compensated for a challenging year in the North American crop business. The improved 2019 P&C combined ratio was driven by a reduction in the underlying accident-year combined ratio, excluding natural catastrophes, of 0.6 percentage points, and a lower level of natural catastrophe losses, Zurich explained. The insurer’s P&C lines achieved price increases of about 4% overall in 2019. Zurich said rates hardened further across most regions as the year progressed, with the biggest price increases during Q4. Zurich expects this hardening trend to continue this year. Zurich’s CFO, George Quinn, said during a press conference that rate increases in 2019 were ahead of loss-cost inflation. He added that the pricing environment is “very strong” and expects this to be “sustained throughout 2020”. Zurich said pricing was “particularly strong” in North America, which saw average rate change of 7% in 2019 and 10% in Q4. Average prices rose by 2% in EMEA during 2019, with Zurich predicting the hardening will continue. Zurich achieved average rates increase of 4% in Asia-Pacific during last year, but said the outlook is slightly moderating. It recorded rate increases of 1% in Latin America and expects them to increase further. “During 2019, the group continued to execute against the key strategic priorities of improving profitability while reducing overall volatility of P&C results. The year demonstrates that improvements in underwriting and the use of reinsurance have led to a more profitable and less volatile business, with the commercial segment showing a particularly strong improvement,” said Zurich. It continues to adjust its overall P&C business mix towards specialty and shorter-tail lines. Specialty and property business lines accounted for 51% of net earned premiums last year, up from 42% in 2015, with a commensurate reduction in motor and casualty business. Zurich’s gross written EMEA P&C premiums increased 6% on a like-for-like basis last year to $14.56bn, with strong growth in the Swiss and UK commercial business, as well as in Italy and some smaller European retail markets. North America P&C premiums grew by 4% compared to the previous year on a like-for-like basis to $15.22bn. The increase was driven mainly by rate increases across different lines, but also by higher retention and increased new business, Zurich said. Asia-Pacific premium increased 7% on a like-for-like basis to $3.03bn, driven mainly by growth in Australia, Malaysia and Japanese retail business. Latin America premiums were up 23% on a like-for-like basis to $2.87bn, mainly driven by growth in Brazil and higher premiums in Argentina. Zurich’s life insurance business saw operating profit fall by 4% in 2019 to $1.49bn, but it was up 2% on a like-for-like basis. Total life premiums were flat at $33.48bn, but also up 4% on a like-for-like basis. Operating profit at Zurich’s US Farmers business was up 4% to $1.7bn last year. Zurich CEO Mario Greco said the insurer’s 2019 results confirm the company has “successfully executed” its plans during the last three years to turn fortunes around after the insurer ran into difficulties, with its global corporate unit suffering large losses.The plan included cutting back from badly performing business, focusing on profitable areas and cutting costs. “It was an amazing journey, during which we significantly strengthened the business, organically and through transactions, reduced P&L volatility and improved customer services. This is also reflected in a further proposed increase of our dividend to CHF20 per share, the third increase in a row,” said Mr Greco. “Today, we feel proud of these results and we are aware of our strengths: we are a simpler, more agile and more efficient company with a compelling strategic vision that will continue guiding us for the next phase of our journey. Very importantly, both customer and employee satisfaction have been rising through [recent] years. With this, we are well positioned to meet the ambitious new targets we set ourselves for the next three years. We look forward with real confidence and excitement as we continue our strategic journey,” he added. Meanwhile, another insurance CEO charged with improving P&C business has also reported good progress. AIG saw net income swing back to an impressive $3.33bn last year from a $6m loss in 2018, as it turned around problems in general insurance, which delivered pre-tax profit of $3.53bn in 2019 from a loss of $469m in the prior 12 months.

Zurich’s P&C profits jump 38% as hardening market helps it successfully execute three-year turnaround plan

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