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Zurich Insurance sees work ahead despite third-quarter profit

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(Reuters) — Zurich Insurance posted strong third-quarter earnings on Thursday as cost cuts and investment returns helped eclipse disappointing performance at its core business.

The Swiss insurer's net profit rose well ahead of market expectations to $912 million. But underwriting performance in its general insurance division missed both group and market expectations.

Chief Financial Officer George Quinn said more work remained to achieve improvements targeted under new management.

"General insurance continues to show underlying improvement across much of the portfolio but has not yet achieved the expected levels of profitability," Mr. Quinn said.

Zurich was in the midst of a $1 billion cost-cutting drive when new Chief Executive Mario Greco arrived in March, and the former Generali head expressed confidence that he could improve shareholder returns and group profitability by untangling the organization’s famously complicated structure.

The group surprised the market in August by making a profit from its general insurance premiums during the first full quarter under Mr. Greco, weathering a period of natural disasters better than expected.

It has struggled with underperformance in the division, its largest source of earnings with services such as property and casualty insurance.

A third-quarter miss related to business written before new underwriting policies were set, Mr. Quinn told Reuters. The problem was being addressed as these policies, whose average length was 12 months, expired and the company made new offers to clients.

Zurich slightly lowered full-year guidance for general insurance profitability, forecasting a combined ratio above 98% versus the targeted 97-98%. A level below 100 means it takes in more in premiums than it pays out in claims.

"The core general insurance business at Zurich has delivered operating profit ahead of expectations despite the fact that the underwriting result was significantly weaker than we had forecast," RBC analyst Paul De'ath wrote in a note. "The offset has been in the investment return, where higher than expected realised gains have driven the overall beat."

Mr. Greco will announce more details of his strategy revamp on Nov. 17. He has already combined its life and general businesses as well as its corporate and commercial businesses, and introduced a new regional structure.

Investors will be keen to hear whether Mr. Greco will extend the cost-cutting drive — which Mr. Quinn said Zurich was still focusing on achieving — and if he will adjust an attractive dividend policy, which some have speculated could be lowered.

"The strong capitalization should give investors confidence in the dividend policy of the firm," Mr. Quinn said on Thursday.