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Zurich set to disappoint

Zurich's new CEO, James Schiro, faces the music on Thursday (Zurich Financial)

Zurich Financial Services comes under the spotlight again on Thursday when the struggling group is set to publish its half-year results.

Its share price has been hammered over the past two years and Zurich has much convincing to do if it is to regain the trust of investors.

A big fear is that the company will not only produce a set of poor financial figures, but will also announce a share capital increase of up to $2.5 billion (SFr3.74 billion) to strengthen its capital base.

According to the Sunday newspaper, the “NZZ am Sonntag”, the new shares would be largely underwritten by banks, with special mention made of UBS Warburg.

International focus

The company’s roots go back to 1872 with the founding of the Zurich Insurance Company.

International focus has been a constant feature throughout its history, with only 21 per cent of premiums coming from Swiss business after only eight years.

Growth continued, with business spanning practically every continent by the end of the 1970s.

The asset management business became a major part of the company’s strategy with the acquisition in 1997 of a majority interest in Scudder, Stevens and Clark.

The Zurich Financial Services group was created from the merger in September 1998 with the financial services business of Britain’s BAT Industries.

The company made a loss last year of $387 million, largely due to insurance claims from the September 11 terror attacks in the United States.

Poor performance

The group has hardly been out of the negative headlines, with much of the controversy surrounding Rolf Hüppi, who in February announced he was stepping down as CEO.

He later said he would also step down as chairman at the next annual shareholders’ meeting.

Hüppi, once described by the Financial Times newspaper as Zurich’s “cigar chomping chief”, dominated the company for a decade.

His strategy of turning Zurich into a financial powerhouse turned sour, and the company – now suffering from weak equity markets like other major European insurers – is seeking to plot a way forward.

“Horrendous” 2001

Hüppi described 2001 as “horrendous” both for the group and the insurance industry in general.

He tried to win back investors’ trust with a $5 billion divestment programme, but the share price kept falling after the company issued four profit warnings.

After weeks of speculation, Zurich in May appointed James Schiro, a virtual industry newcomer, to try to steer the company into calmer waters.

Schiro, one of the few Americans ever to run a major Swiss company, was instrumental in bringing about the merger of Price Waterhouse and Coopers and Lybrand in 1988, creating the largest professional services firm.

Plot the future course

It will be his job on Thursday to explain the January-June figures and map out the future course of the group.

According to one report, the financial analysts’ conference in the afternoon will last three and a half hours, so the feeling is there is much to say.

In the group’s portrait on its website, Zurich comments: “From the start, our business has been to protect our customers from financial risk.”

Investors would no doubt like to be included too.

by Robert Brookes

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