* Insurer flags $250 mln in restructuring charges in Q2
* First-quarter net profit $1.3 bln vs $1.1 bln Reuters poll
* Capital gains, one-off pension fund earnings boost results
* Combined ratio improves to 93.9 pct vs 94.9 pct year-ago
(Adds market reaction, CFO comment, detail)
By Joshua Franklin
ZURICH, May 15 Zurich Insurance said
on Thursday it expects to finish booking the costs of a business
overhaul in the current quarter, as its profitability in the
first three months of the year was boosted by capital gains and
one-off pension fund earnings.
The Swiss insurer began a three-year restructuring programme
at the end of 2013 to invest in high-margin businesses and sell
underperforming lines, the cost of which will total $600
The company took $350 million in charges in the final three
months of 2013 and the first three months of this year. It
expects to book the remaining $250 million in the second
quarter, the company said in a presentation accompanying its
"We see some early positive signs in the execution of our
strategic targets for 2014 to 2016, but there is still much to
do," new finance chief George Quinn said in a statement.
Zurich said in March it would cut up to 800 jobs to reduce
costs and improve profitability. Quinn told journalists in a
conference call the insurer hoped to complete the process
shortly and the cuts would be focused mainly in its home base in
Switzerland, as well as Britain and Ireland.
In its results on Thursday, first-quarter net profit was
$1.3 billion, beating expectations for $1.1 billion in a Reuters
poll of analysts.
The final figure was above even the most optimistic of
forecasts, though the company said it also included a one-off
gain of $130 million from a Swiss pension fund stemming from
changes to the annuitisation rate.
Zurich's bottom line was also boosted by capital gains as it
shifted its asset allocation portfolio into equities and
high-grade corporate debt and out of low-yielding government
securities. Quinn said it was difficult to know whether this
would be repeated the future.
"If interest rates remain where they are and we continue to
shift the asset allocation, it's probably more likely than not
that you would still see some capital gains but it's very hard
to quantify," Quinn told journalists in the conference call.
The insurer posted a first quarter combined ratio, a measure
of underwriting profitability, of 93.9 percent, a 1 point
improvement on the year.
The company said this was helped by lower catastrophe
Quinn said in a presentation that reserve releases - the
release of funds that had been set aside to cover claims - were
likely to remain historically low in 2014, due to the current
environment of low inflation.
Shares in Zurich were trading down 0.1 percent at 257.70
Swiss francs by 0942 GMT, slightly outperforming the European
insurance index, which was 0.2 percent lower.
Some analysts said Zurich's high dividend would continue to
appeal most to investors, the shares yielding 6.6 percent
compared with an average of 4.3 percent among its peers.
"The main attraction in the investment case, in our view,
remains the dividend yield," Bank of America Merrill Lynch
analysts Michael van Wegen and Jelena Bjelanovic wrote in a
note. "However, due to the already high pay-out ratio, and
limited earnings growth, we see limited room for growth in
($1 = 0.8899 Swiss Francs)
(Reporting by Joshua Franklin; Editing by Muralikumar
Anantharaman and John Stonestreet)