ZURICH (Bloomberg)—Zurich Financial Services Ltd., Switzerland's biggest insurer, said fourth-quarter profit was little changed after general insurance margins were squeezed by claims from flooding in Australia.

Net income was $1.04 billion compared with a restated $1.03 billion a year earlier, according to the Zurich-based insurer. The average estimate of eight analysts surveyed by Bloomberg was $1.02 billion.

Zurich plans to cut costs by $500 million over the next three years with more than two-thirds of the savings coming from its general insurance business. The company raised its dividend to an 11-year high of 17 Swiss francs ($17.70) while the revaluation of its stake in New China Life Insurance Co. boosted shareholders' equity.

“Shareholders' equity and the dividend jump out as positives,” said Christian Muschick, a Frankfurt-based analyst with Silvia Quandt & Cie. A.G. “However, clearer guidance for 2011 would have been good.”

Shareholders' equity increased 9% to $32 billion after Zurich added $1 billion to the valuation of its 20% holding in New China Life Insurance, Chief Financial Officer Dieter Wemmer said on a conference call Thursday.

General insurance head Mario Greco is seeking to boost earnings at the company's biggest business amid price wars in the United Kingdom, Italy and Germany. The insurer wants to improve its combined ratio, a key measure of profitability in general insurance that shows spending on claims and costs as a percentage of premiums, by 3 to 4 percentage points.

Australian floods

The combined ratio worsened to 98.3% in the fourth quarter from 96.6% a year earlier because of lower premiums and higher claims from the floods in Australia. A ratio above 100% means an insurer’s claims and costs exceed premium income, giving it a loss from underwriting.

“In general insurance, our focus remains on protecting profit margins driven by carefully targeted re-underwriting actions” after a year “with an exceptionally high number of significant loss events,” Chief Executive Officer Martin Senn said Thursday in an e-mailed statement.

Zurich revised its estimated pretax losses for last February’s earthquake in Chile to $175 million from $200 million and estimated 2010 pretax losses for the floods in Australia at $100 million. Losses from last month’s flooding in the states of Queensland and Victoria are likely to be “more severe” than those from the December events in Australia, Zurich said.

Full-year net income fell 13% to $3.43 billion after the insurer agreed to pay $455 million to settle a U.S. class action lawsuit related to its Farmers Group unit. Operating profit declined by the same margin to $4.9 billion.

Copyright 2011 Bloomberg