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Zurich on track despite profit dent from U.K. business

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(Reuters) — Zurich Insurance Group expects to deliver on its 2017-2019 targets after a strong start to the year, despite a larger-than-expected fall in first-quarter net profit due to a change to Britain’s discount rate for liability claims.

A more than 3% change to Britain’s so-called Ogden rate, a tool for calculating personal injury and accident claims, dampened Zurich’s core property/casualty business in the quarter.

But Zurich said on Thursday its core general insurance unit had made “significant progress” in underwriting profitability and the $289 million hit to operating profit from the Ogden change was below previous guidance.

“This is a good start to the year with strong performance from all of our businesses,” Chief Financial Officer George Quinn said in a statement. “This ... puts us on solid footing to deliver on our 2017-2019 financial targets.”

German rival Allianz last week posted a 9.5% rise in first-quarter operating profit and said it was optimistic despite a very tough business environment.

Italian insurer Generali’s net profit in the first three months fell 9% due to lower capital gains and higher taxes and impairments.

Zurich’s management increased its cost-cutting goals in November to generate net savings of $1.5 billion by 2019 versus 2015, while trimming its main profitability goal.

Mr. Quinn said the program, which generated $400 million in net savings through the end of the first quarter, was on track.

While analysts had questioned whether the target was too ambitious, Mr. Quinn told reporters the savings goal was “absolutely achievable.”

Shares in Zurich fell 0.4%, outperforming the European insurance index, which was down 0.9%.

Excluding the change to the discount rate, business operating profit rose 14% year-on-year to $1.22 billion, although net profit dropped almost a third to $607 million following the Ogden impact, missing market expectations.

Zurich’s property/casualty combined ratio of 100.7% missed analyst estimates for 99.9%.

On a like-for-like basis excluding the British regulatory change, the unit increased underwriting profitability as its combined ratio fell to 97.2%.