Baloise shares slump as H1 profit tumbles

By Andrew Thompson

ZURICH (Reuters) - Swiss insurer Baloise (BALN.VX) posted a worse-than-expected 42 percent drop in first-half net profit as losses on investments weighed, and it cautioned stock markets would remain volatile in 2008, dragging its shares down.

First-half net profit fell to 274 million Swiss francs ($431.3 million), well below the average forecast of 388 million francs in a Reuters survey, as the group's life business was hit by losses in equities and fixed income investments.

"The year 2008 will continue to be characterised by volatile financial markets and the high pricing and competitive pressure," the Swiss insurer said in a statement on Wednesday.

By 1108 GMT, shares in the group had slumped 7.3 percent to 93.45 francs, underperforming a weaker DJ Stoxx European Insurance Index .SXIP.

"Baloise has been badly hit by its high equity exposure and its correlation to financial markets and, despite the very strong underlying operational performance, Baloise results are largely below expectations," said Helvea analyst Marc Effgen.

"We will probably reduce our earnings estimates for the year to reflect this set of results. We reiterate our Neutral stance and 110 franc target price," Effgen said.

Baloise has one of the industry's highest stock market exposures and is therefore more affected by market swings than its peers, such as National Versicherungen (NATN.S).

The group said its asset management net income fell to 820 million francs from 1.414 billion francs in the year-ago period.

Consolidated equity fell 17 percent to 4 billion francs compared with the 2007 year-end.

Pretax profit in the life segment fell sharply to 109 million Swiss francs, from 270 million in the year-ago period, while pretax profit in the non-life segment fell to 231 million francs from 267 million.

But the combined ratio in the non-life sector improved to a better-than-expected 92.3 percent from 95.6 percent, as there were no significant claims during the period.

The company, which competes with Zurich Financial Services (ZURN.VX), said it still expects to see a return on equity of 15 percent over the cycle and a steady increase in earnings per share.

The group will also propose an unchanged dividend of 4.50 francs.

Banking unit SoBa's pre-tax profit was flat at 30 million francs.

Baloise's stock has fallen more than 9 percent this year so far and is trading at around 7 times 2009 earnings, below rival Swiss Life (SLHN.VX) on a multiple of 11.

(Editing by Rory Channing/Richard Hubbard)