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Zurich perseveres through tough period


Zurich Insurance Group Ltd. has hit some choppy waters that could encourage competitors. But despite withdrawing from its deal to acquire RSA Insurance Group P.L.C. and the recent exit of several top executives, the insurer remains financially strong.

In late September, the insurer called off its tentative £5.6 billion ($8.79 billion) bid for RSA, just one day before the deadline to make a formal offer and said it was undertaking a review of its property/ casualty business.

Zurich said it expected a $275 million loss from a series of August explosions at the port of Tianjin, China, and other adverse third-quarter developments, including the need to strengthen its U.S. auto liability and U.S. construction reserves by about $300 million. It said it expected a $200 million quarterly loss in its nonlife insurance segment.

In early October, Zurich said Kristoff Terryn had replaced Michael Kerner as head of its main general insurance business. Zurich also named Paul Horgan as head of the global corporate business in North America, replacing Daniel Riordan, who Zurich said in a statement had left “to pursue professional opportunities outside of the company.”

And sources say Zurich is a lead insurer on a $25 million primary layer of directors and officers liability coverage for Volkswagen A.G., which is embroiled in an auto emissions cheating scandal.

Despite these developments, there has been nothing to suggest “any kind of fundamental problem” at Zurich, said Mark Dwelle, director of insurance equity research at RBC Capital Markets, a unit of RBC Dominion Securities Inc. in Richmond, Virginia.

“In an organization our size, people choose to do other things in their careers and we had the ability to fill positions quickly and decisively,” Mike Foley, CEO of Zurich North America commercial and regional chairman of North America, said during the Council of Insurance Agents & Brokers Insurance Leadership Forum last week.

“Clearly, they have a few issues, and it's now down to a restructuring phase, so I'll wait for the outcome of their strategic review,” which is due Nov. 5 when it releases its nine-month results, said Andy Hughes, a London-based analyst at Macquarie Group Ltd.

“We're expecting they'll probably cut some costs” as well as some global corporate business “which has generated a lot of volatility obviously,” Mr. Hughes said. “That's pretty positive.”

The situation is “probably not as bad as it seems,” he said. “They've just had a period of bad luck.” Citing the uncertainty of the insurance business, Mr. Hughes said, “you're going to have bad days and good days, and I think they've had their share of bad business these days. That doesn't mean it's a bad business.”

While halting the RSA deal and management changes were surprising, “other than that, it's not a dramatic year for Zurich,” said Johannes Bender, Frankfurt-based credit analyst at Standard & Poor's Corp., which rates the insurer AA- with a stable outlook.

“The company remains solid,” Mr. Bender said. Despite the management changes, “we don't expect them to change drastically in their overall strategy.”

“I think the company's perceiving perhaps pressure to grow, given other activity in the market, and they looked at RSA,” said Jim Auden, managing director of insurance at Fitch Ratings Inc. in Chicago. “Maybe there were elements in the organization that were never really behind the deal. There may not have been unity in the ranks in going after RSA in the first place.”

“It's disturbing to see a major global player have these kinds of problems, but I'm sure it creates opportunities for big U.S. companies,” such as New York-based American International Group Inc. and Ace Ltd., said Cliff Gallant, an analyst at Nomura Securities International Inc. in San Francisco, who does not follow Zurich directly. They are probably looking at Zurich and see the chance to “cherry-pick parts of their business or perhaps something more.”