ING, Zurich weather credit turmoil with solid results

By Reed Stevenson and Andrew Thompson

AMSTERDAM/ZURICH (Reuters) - European financial groups ING (ING.AS) and Zurich Financial Services (ZURN.VX) reported quarterly profits that met or exceeded expectations on Wednesday, helped by strong insurance businesses and limited investment writedowns.

But smaller insurers in Europe, more vulnerable to credit market turmoil and weakening economic conditions, reported sluggish profits.

ING's second-quarter net profit fell 25 percent to 1.92 billion euros ($2.86 billion), hurt by lower real estate, private equity valuations and investment returns. This was above the average forecast of 1.52 billion euros in a Reuters poll of 12 analysts, as well as the highest forecast of 1.69 billion euros.

Zurich, which reported first-half figures, said it had net profit of $2.68 billion, in line with 12 analysts' average forecast of $2.62 billion.

Shares fell broadly, reflecting continued concern over insurance portfolios after last week's massive $5 billion net loss from U.S. insurance giant American International Group inc (AIG.N) and a halving of quarterly net profit at Belgian-Dutch banking and insurance group Fortis (FOR.BR).

ING was down 0.5 percent at 22.86 euros at 0816 GMT, while Zurich fell 1.9 percent. The DJ Stoxx European Insurance index .SXIP was down 3.84 percent.

Zurich and ING's results have proven to be more resilient through the credit crunch and subprime crisis than many of their peers. Zurich, Europe's fourth largest insurance group, has managed to weather difficult financial markets as well as competitive insurance markets, where prices are dropping.

ING has taken limited writedowns on subprime-related investments, triggered a year ago when large numbers of less creditworthy U.S. borrowers began to default on mortgages, but the Amsterdam-based group still has a comfortable cash cushion of potentially 3.9 billion euros to weather any further credit turmoil.

"We clearly have a buffer throughout our group," ING Chief Financial Officer John Hele told reporters. ING also paid out 1.7 billion euros in dividends in the first half.

Zurich has said it has no material exposure to U.S. subprime debt or collateralized debt obligations (CDOs) and has incurred a $16 million impairment on mortgage-basked securities since the end of December. Chief Executive James Schiro is forging ahead with a program at Zurich aimed at cutting $800 million in annual costs to 2010.

ING, which also has a substantial real estate portfolio, booked a 44-million-euro writedown after tax from its exposure to subprime, Alt-A and other struggling asset classes and a negative revaluation of 260 million euros through shareholders' equity.

"ING has outperformed peers in recent months as it has shown to be fairly resilient to the subprime crisis," said Petercam analyst Ton Gietman.

ING said it took advantage of the brief market rally in April to reduce its equity exposure, and added that equity gains were significantly below the exceptional levels realized last year.

"Financial services companies are facing unprecedented market volatility, limited liquidity, and intensified competition for deposits, which we see continuing into 2009," ING's Tilmant said.

Shares in ING have outperformed Europe's other financial groups, losing 16 percent so far this year compared with a 28 percent drop in the DJ Stoxx European Banking index .SX7P.