Zurich Insurance Group AG has had an "excellent" second quarter, making good progress with cost savings and offsetting all charges booked in the previous quarter related to a change in the U.K. personal injury discount rate, CEO Mario Greco said in a conference call Aug. 10.
The group achieved net cost savings of $550 million by the end of June, which is more than a third of the $1.5 billion cost reduction target set for the end of 2019, he said. Greco, who took over as CEO of Zurich in May 2016, presented the two-year cost reduction plan in November 2016.
Initially there was doubt around whether the group would be able to achieve what it was aiming for, Greco said.
"Now, every quarter we are making progress and this shows people that we deliver on what we announce," he said.
A substantial part of the savings come from a cost base reduction in the head office and another large portion of the cuts was achieved through the renegotiation of contracts, including IT and supplier agreements, Greco said. He also denied that Zurich has a specific target for job cuts.
"The 8,000-job-cut target no longer exists; this has never been part of our strategic targets and plan," he said. "We are looking at every single lever of costs and it is not about targeting any special number of job positions or job reductions."
The U.K. government's decision to revise the personal injury discount rate, or Ogden rate, cost Zurich Insurance $289 million in charges in the first quarter of 2017 and hurt operating profit for that period. This charge was fully offset by the end of June, according to the CEO. The Ogden rate, used to calculate lump-sum compensation payments in U.K. personal injury claims, was reduced to negative 0.75% from 2.5% in February, leading to higher payments from insurers when claimants are successful.
Including the impact of the Ogden rate, the group's business operating profit for the first half stood at $2.17 billion, almost flat compared to $2.16 billion in the same period in 2016. Excluding the Ogden effect, business operating profit showed a 14% year-over-year rise to $2.5 billion.
The figures excluding the Ogden rate show the underlying strength of the business, Greco said.
"We have to highlight that it was nothing more than a one-off effect. By the end of the year Ogden will become invisible and is already kind of invisible at the half-year because [business operating income] is already above what it was the year before," he said.
Natural catastrophe charges from events during the second quarter, especially hail storms in Colorado and Texas, hit the combined ratio for the first half year by about 3.8 basis points. The first-half impact totals about $400 million, CFO George Quinn said. This was slightly higher than typically seen for a half-year, he said.
Excluding the Ogden rate, the combined ratio in the property and casualty segment was 97.8%. This is "quite reasonable" and the group will aim to maintain a lower ratio going forward, Greco said.