2nd UPDATE: Zurich Profit Rises, Emerging Market Focus Paying Off

Zurich Insurance Group AG (ZURN.VX) joined the growing ranks of insurers reporting solid first-quarter earnings Thursday and said it was starting to reap benefits from its expansion in growth markets in Latin America and Asia.

The Swiss insurance company said net profit rose 78% to $1.14 billion in the three months ended March 31 from $640 million a year earlier. Business operating profit, the figure the company prefers to gauge its performance, rose 61% to $1.38 billion from $854 million in the first quarter of 2011, while premiums and fees at its largest division, general insurance, of $10.47 billion were up 4% from a year earlier.

Net profit for the group increased on the back of a strong result at its general insurance division, which offset declining profit in life insurance, where lower interest rates hurt investment profitability.

Net profit was above analysts' estimates, while business operating profit was more or less in line.

"In Latin America, we already see the positive impact of the insurance businesses acquired from Santander," said Chief Executive Martin Senn in a statement.

Zurich last year expanded its presence in Latin America through a complex deal with Spain's Banco Santander SA (STD) and acquired an insurer in Malaysia. This new focus on emerging markets is starting to pay off, and helped offset declining volume in Europe, particularly in those countries hit most by the economic crisis.

Zurich Insurance is joining peers in reporting on a very strong first quarter, as the industry recovers from the many natural catastrophes that made 2011 one of the costliest ever for insurers.

As a result of the catastrophes last year--which included the Japan tsunami and heavy floods in Australia and Thailand--insurers now appear to be able to ask for higher prices as demand for coverage is rising. Zurich said it increased prices for property & casualty insurance by 3% during the period.

The company is confident prices will rise further, though the increase may be a tad below 3% during the rest of the year, chief financial officer Pierr Wauthier told reporters.

The company's focus on profitable growth means that Zurich is identifying segments that are the least profitable ones, such as the U.K. and Spain during the first quarter, and taking action, he said. Such action can range from not renewing contracts to raising prices or changing the terms and conditions of contracts.

With payouts to cover claims from big disasters falling sharply, the combined ratio--a measure of insurers' profitability--improved to 94.6% from 103.6%. A ratio below 100% suggests that an insurer is making a profit from underwriting contracts.

First-quarter results were well received by analysts and Zurich's shares rose in early trading.

At 0715 GMT, Zurich Insurance was CHF2.30 higher, or up 1.1%, at CHF220.10, a tad more than the broader insurance sector in Europe which was 1% higher. The stock has gained more than 11% since the beginning of the year, better than the sector overall, which is up just under 9% over the same period, as measured by the Stoxx 600 insurance index.

-By Anita Greil, Dow Jones Newswires; +41 43 443 8044 ; anita.greil@dowjones.com

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