Europe’s Big Insurers Hit by Debt Crisis, Catastrophes, Economy

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European insurers Axa and Zurich Financial suffered on all sides last year as Europe’s debt crisis ate into their sovereign bond holdings, catastrophe claims emptied coffers and the downturn cut demand for life cover.

Axa, Europe’s No. 2 insurer, said adjusted earnings fell 15 percent to 3.59 billion euros ($4.69 billion), shy of the 3.88 billion pencilled in by analysts. Third-ranked Zurich’s operating profit fell 12 percent, with net income of $3.76 billion, boosted by one-off gains, also undershooting expectations.

Axa was hit by a bigger-than-expected 387 million euro writedown on its holdings of distressed Greek sovereign debt, and Zurich had to absorb $1 billion in claims after a spate of major natural disasters last year.

Sharp falls in the value of some eurozone government bonds amid doubts over their issuers’ creditworthiness, and a near-record run of catastrophes led by Japan’s Tohoku earthquake weighed heavily. Most of Europe’s insurers are forecast to report weaker 2011 profits.

“In challenging economic and financial market conditions, our group maintained its focus,” Zurich Chairman Manfred Getz and CEO Martin Senn wrote in a letter to investors.

Axa shares were down 3.3 percent by 1025 GMT, the steepest faller in the Stoxx 600 European insurance share index, which was 1.5 percent lower. Zurich was off 1.55 percent.

Axa and Zurich both kept their dividends unchanged amid close investor scrutiny of insurers’ capital strength, buffeted by the eurozone debt crisis and facing further pressure from the European Union’s tough new Solvency II capital regime.

Both insurers also reported a stronger performance in motor and home insurance than in life insurance, where revenues fell 4 percent for Axa and 5 percent for Zurich.

Rock-bottom interest rates have forced European life insurers to slash guaranteed returns on popular long-term savings policies, exposing them to stiff competition from banks keen to boost their retail deposits amid a scarcity of wholesale funding.

Non-life insurers, in contrast, have benefited from a cyclical upturn in motor, home and commercial insurance prices as less well-financed players retrench, freeing those still in the market to charge more.

Axa and Zurich confirmed the trend, reporting an increase in non-life prices of 5 percent and 3 percent respectively.