ZURVY Zurich Insurance Group Limited (QX)

By John Letzing and Giovanni Legorano 

Two of Europe's biggest insurers posted sharp declines in first-quarter profit on Thursday. But while investors looked beyond Zurich Insurance Group AG's shortfall, they punished Italy's Assicurazioni Generali SpA.

One reason for the reaction was that Mario Greco, Zurich Insurance's new chief executive as of March--and, until recently, the head at Generali--was able to point to a recent improvement at the embattled Swiss company's largest business, and ongoing cost-cutting efforts, while signaling plans for a significant brand revamp.

Generali however issued a report that highlighted difficulties many insurers have encountered, as they scramble for investment returns in a world of low and negative interest rates.

Zurich Insurance said its first-quarter net profit fell 28% compared with the same period last year, to $875 million. Analysts had expected a profit of $728 million.

The company's biggest unit, general insurance, reported a decline in gross written premiums compared with last year's period. But profitability at the unit improved significantly in the quarter, compared with its overall result for 2015. The overall return on the insurer's investments also ticked up slightly.

Shares of Zurich Insurance rose more than 6%.

Daniel Bischof, an analyst at Helvea Baader Bank, said the results show Zurich Insurance "heading in the right direction." While the benefits of cost-cutting efforts aren't yet clear, the analyst said, indications are that "they're working hard on that." The company has flagged plans to cut up to 8,000 jobs by the end of 2018.

Generali, which bid farewell to Mr. Greco in January, reported that its first-quarter profit fell 14% compared with the same period last year, to EUR588 million ($671.6 million). The insurer cited the impact of ultralow interest rates on its investments, and said it is under pressure to find new ways to cut costs.

"We are carrying out a thorough analysis to understand where we can generate additional profitability," said Generali Chief Financial Officer Alberto Minali.

Shares of Generali fell by about 3%.

The insurance industry has been mired in a difficult period, due in part to the low, and sometimes negative, interest rates that have dogged insurers' ability to turn the premiums that they earn into profitable investments.

Generali, which was presenting its first results under Chief Executive Philippe Donnet, who took over in March, is betting on a big commercial push in Europe, Asia and Latin America to improve its cash flow. In the first quarter, Generali's life-insurance business posted an 8.1% decline in operating income to EUR756 million. The company's property and casualty business reported that operating income was virtually flat, at EUR498 million.

Generali, which does much of its business in the eurozone, where central bank policy makers have implemented negative interest rates, said it has tried to favor a portfolio of policies that are less sensitive to low rates, and which absorb less capital at its life insurance business.

Investment returns at the company's life business declined 18% compared with the same period last year, Generali said, while returns at the property and casualty unit were down 14%. The Italian insurer said it couldn't repeat the gains made in the quarter last year, which had been particularly strong.

Zurich Insurance, which is based in a country that also has negative interest rate policies but operates around the globe, said it managed to improve its total return on investments to 2.7% in the quarter, from 2.6% in the same period last year.

The Swiss company's mainstay business of general insurance reported a combined ratio for the first quarter of 97.7%--an improvement over the 103.6% reported for all of 2015. The combined ratio is a measure of how much is paid on claims and costs for each dollar earned, and a ratio of less than 100% means that an underwriting business is profitable.

Troubles at the general insurance business have undercut the firm's financial results in recent quarters, and hampered its ability to pursue a takeover last year of U.K.-based RSA Insurance Group PLC. That acquisition bid was called off last September.

Zurich Insurance said on Tuesday that improvement at the general insurance business should continue. "We expect performance to strengthen further as the year progresses," said Chief Financial Officer George Quinn.

Write to John Letzing at john.letzing@wsj.com and Giovanni Legorano at giovanni.legorano@wsj.com

(END) Dow Jones Newswires

May 12, 2016 09:05 ET (13:05 GMT)

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