UPDATE 2-Zurich says restructuring on track as profit rises

Thu Aug 7, 2014 4:44am EDT

* Zurich Q2 net profit rises 6 pct to $837 mln

* Says on track with profitability drive

* Expects to see savings from restructuring by end 2015

* Shares rise 3.4 percent, outperform sector (Adds CEO, CFO, analyst, detail)

By Alice Baghdjian

ZURICH, Aug 7 (Reuters) - Zurich Insurance Group posted a rise in second-quarter net profit on Thursday and said its business overhaul was on track, with job cuts largely completed and more than half of restructuring costs booked.

Restructuring costs meant the insurer's net profit missed forecasts, rising 6 percent against expectations for a 21 percent jump, but its shares rose more than 3 percent after the results as the costs were seen as a one-off factor. The company said it was on course to meet its targets for the next two years.

Zurich announced at the end of 2013 that it would revamp its businesses, aiming to boost profitability by investing in high margin units, selling underperforming lines and cutting jobs.

Around 670 positions have been cut, the Swiss insurer said. In March, the company said it would cut about 800 jobs globally to try to save around $250 million per year.

"These savings will start to flow through to our results by the end of 2015," Chief Executive Martin Senn said on a call with journalists. "This streamlining is largely completed."

Zurich is on track for its 2014 to 2016 targets, Senn said.

The insurer has already shed businesses seen to be underperforming. Around $470 million of $520 million in costs has been booked so far, finance chief George Quinn said.

Zurich said in July it would take a hit of about $300 million in the third quarter from selling its Russian retail business to the OLMA Group.

The restructuring measures and strategy overhaul will take time to bear fruit.

"While (the sale of the Russian unit) should support profitability going forward, restructuring charges of some $600 million, expected by the third quarter, are weighing on the results in the near term," said Dominik Studer, an analyst at J. Safra Sarasin.

Around $120 million in restructuring costs was booked in the second quarter, Vontobel analyst Stefan Schuermann said.

Lower natural catastrophe damage claims however helped the Swiss insurer post a net profit of $837 million, lifting its shares 3.2 percent higher by 0826 GMT to outperform the European sector index.

The firm was forecast to report quarterly net profit of $953 million, according to the average of six estimates in a Reuters poll of banks and brokerages.

Zurich said its combined ratio, an insurance industry measure of profitability that weighs payouts against premium income, improved 3.4 points to 95.7 percent in the second quarter, compared to a 94.9 percent poll estimate. (Additional reporting by Paul Arnold; Editing by Miral Fahmy and Susan Fenton)