Zurich Financial Services AG, Switzerland's biggest insurer, said second-quarter profit fell 2.5 percent after investment losses eroded earnings.

Net income slipped to $1.25 billion from $1.29 billion a year earlier, the Zurich-based company said today in a statement. The insurer said it had a $437 million net capital loss on investments and impairments compared with a $198 million gain in the year- earlier period as investment income declined by 25 percent.
Zurich Financial said it remains on the lookout for acquisitions after nine purchases over the past year and is on track to meet its $800 million savings target for 2008 following job cuts in the UK and U.S. amid the subprime market meltdown. The company plans to run its ``business lean,'' Chief Financial Officer Dieter Wemmer said.
``These are good numbers and this is the only company I follow that beat estimates,'' said Michael Huttner, an insurance analyst at JPMorgan in London with a ``neutral'' recommendation on the stock. ``The non-life result is stunning because premiums have been declining generally.''
Business operating profit at Zurich Financial's general insurance division, its biggest unit, rose by 49 percent in the three months to $1.05 billion and by 6.5 percent at the life insurance unit to $429 million. Operating profit at its Farmers Management Services in the U.S. fell 7 percent to $317 million.
The company said net income from investments in the quarter slid by one-fourth to $1.8 billion compared with a year earlier. The insurer declined 1.3 percent to 283.25 francs in Swiss trading. It has now lost 15 percent this year compared with a 24 percent drop by the 31-member Bloomberg European Insurance Index.
Zurich Financial, run by Chief Executive Officer James J. Schiro, said today that net income in the first half was almost unchanged at $2.681 billion compared with $2.676 billion a year earlier.
That topped analysts' $2.65 billion median estimate as did second-quarter results that beat the $1.21 billion median estimate.
The combined ratio, a measure of profitability for Zurich Financial's general insurance business, improved to 97.7 percent from 99.6 percent, the company said.
``These are excellent results under any market condition,'' Schiro, 62, said. The growth strategy ``is bolstering our position in attractive markets'' so Zurich is ``confident'' about meeting a 16 percent return on equity target over the cycle, he said.
The results were boosted by reserve releases, said Rene Locher, an analyst at Bank Sal Oppenheim in Zurich who rates the stock a ``buy.'' ``If you're a real bull on Zurich, you'd say the underwriting business has higher quality earnings than on the investment side though that was in line with expectations.''
Zurich Financial, which last month pulled out of the bidding for Royal Bank of Scotland Group Plc's insurance unit, is still looking for acquisitions, Wemmer said in a Bloomberg television interview. ``2008 and 2009 is a good market for opportunities fitting businesses to our portfolio,'' he said.
(Source: Bloomberg)