Zurich Financial profit falls, suspends buyback

* 9-month business operating profit down 15 pct at $4.2 bln

* Average of analysts' forecasts was for $4.5 bln

* Company suspends share buyback programme

* Share price falls 4.8 percent

(Adds further comments by CFO, analysts; updates share price)

By Jason Rhodes

ZURICH (Reuters) - Zurich Financial Services AG (ZURN.VX) posted a below-forecast 15 percent drop in nine-month business operating profit to $4.2 billion, hit by hurricane claims and capital losses, and suspended share buybacks.

The Swiss insurer said its underlying performance was resilient in "particularly adverse circumstances" and that it stayed in profit in the third quarter despite writing down $595 million for claim payments related to hurricanes Gustav and Ike and record capital losses for shareholders of $1.1 billion.

"We believe that achieving a net profit for Q3 despite $1.7bn impacts from storms (both natural and financial) is a great achievement," said Helvea analyst Marc Effgen.

The last week has seen a raft of disappointing results from European insurers hit by the financial crisis. Swiss Life (SLHN.VX) warned on profits on Wednesday and cut its dividend, while Dutch group ING (ING.AS) posted its first quarterly loss.

At 1129 GMT, Zurich's shares were down 4.86 percent at 205.30 Swiss francs as investors punished the company's decision to suspend buybacks.

Other Swiss financial stocks, including banks UBS (UBSN.VX) and Credit Suisse (CSGN.VX), were also under pressure.

"It's a good result compared to other European insurers," said Sal. Oppenheim analyst Rene Locher. "I have a 'buy' rating on the share and it remains one of my favourite stocks in the insurance sector."

Zurich Financial, Europe's fifth-largest insurer by market value, said gross written premiums for the nine-month period rose 7 percent to $29.2 billion.

'PRUDENCE COMES FIRST'

Citing current market volatility, Zurich Financial said for the time being it will not repurchase shares under its ongoing 2.2 billion Swiss franc ($1.86 billion) buyback programme.

The company has bought back $1.045 billion so far under the programme and it will consider resuming buybacks when markets stabilise, Chief Financial Officer Dieter Wemmer said, adding that the company needs to remain prudent on acquisitions too.

"You have to balance at this time between prudence and opportunity even if prices are low, and I think prudence comes first as we don't know how long this financial crisis will last," Wemmer told a journalist conference call.

Nine-month net income fell 32 percent to $2.8 billion, in line with average analyst forecasts in a Reuters poll, giving a return on equity of 14.5 percent. Analysts had forecast business operating profit of $4.5 billion.

The company confirmed its medium-term goal of a 16 percent return on equity. Its return on equity target relates to business operating profit after tax, which strips out investments and extraordinary effects.

"I see the fourth quarter as a turning point," Wemmer told investors on a conference call, adding that even if equities stayed at October's depressed levels the negative impact on income would be under $350 million for the fourth quarter.

The company said its solvency ratio was 159 percent at the end of October and that it is well positioned to weather the current financial storm. The lower the solvency number, the more likely a company is to default on its debt obligations.

Wemmer told investors that if Zurich completed its buyback programme, the solvency figure would be 151 percent and therefore still healthy.

"The strong balance sheet and solvency should reassure the financial markets," said Helvea's Effgen.

Chief Executive Officer James Schiro said Zurich Financial expected to make some additional writedowns, but remained optimistic about the future.

"We see an improving general insurance environment and continued opportunities across all our businesses, leaving us confident in our ability to generate consistent shareholder value," Schiro told CNBC television.

Zurich Financial's combined costs and claims ratio to premium income was 98.7 percent.

The insurer said it is on track to achieve its $800 million cost savings target for 2008 and that it expects $900 million in savings for each of the years from 2009 to 2011.

Shares in Zurich Financial currently trade at around 5.3 times forecast 2009 earnings, roughly in line with its European peers and better than local rivals Swiss Life and Baloise (BALN.VX).

($1=1.182 Swiss francs)

(Editing by Greg Mahlich, John Stonestreet)