ZURICH (Bloomberg) ? Zurich Financial Services AG, the biggest Swiss insurer, said second-quarter profit rose 20 percent, topping analyst estimates, helped by investment income gains and higher premiums.

Net income in the three months through June increased to $1.02 billion from a restated $840 million a year earlier, the Zurich- based company said yesterday. The shares fell the most in six weeks after the insurer said its combined ratio worsened, a sign its underwriting business was less profitable.

The 133-year-old company, trying to compete against rivals including France?s Axa SA, has announced more than $2.4 billion in asset sales under James Schiro, 59, its first American chief executive. Zurich Financial said earnings were buoyed by $2.3 billion in business operating profit, its best ever for a half.

?On the one hand, everything is going well, the return to their main business is bearing fruit,? said Thomas Lusetti, a fund manager at Verwaltungs & Privat-Bank AG, which manages about $21 billion. ?On the other hand, we have a combined ratio which worsened a little bit.?

The shares, which have risen 24 percent this year, sixth-best on the 27-member Bloomberg European Insurance Index, slid 1.6 percent to 231.2 francs on the highest volume since July 7. Axa gained 22 percent in the same period and the index 9.8 percent.

Zurich Financial said the combined ratio, a measure of profit in the insurance business, was 96.9 percent compared with 96.6 a year earlier due to higher claims.

That was worse than analysts? 96.0 median estimate. A combined ratio of less than 100 indicates an underwriting profit. The lower the ratio, the higher the profit.

The company?s profit in the quarter beat a $847 million median net income estimate from eight analysts surveyed by Bloomberg News.

?The market seems to not like the combined ratio,? said Spencer Horgan, an analyst at Deutsche Bank AG in London. The ?slightly higher-than-expected number? doesn?t ?point to any underlying deterioration,? he said, and ?the bottom line was comfortably ahead of where we expected it to be.?

Since Schiro took over as CEO three years ago, he?s pulled back from predecessor Rolf Hueppi?s move into banking.

Schiro?s plan to save $500 million this year by improving its underwriting and claims management included cutting 5,000 jobs and a $2.5 billion capital increase that helped return Zurich Financial to profit after a record loss in 2002.

?The bottom line is that we are celebrating a record operating performance,? Schiro said. ?The number of losses we experienced in the first half of the year were out of range of what we expected to have,? he told analysts in a conference call. ?We do not see that as a pattern going forward.?

In Europe, general insurance, smaller losses and better expense controls generated ?a sizeable improvement,? the company said, more than compensating ?for the lower net underwriting result of $83 million in global corporate,? which it said was hit by ?higher-than-average? fire and flood claims in Europe.

Axa, the second-biggest insurer in Europe, said July 28 that second-quarter revenue rose 5 percent, helped by life policy sales and savings plans in France as well as Belgium and southern Europe.

?Zurich has to show growth now after we?ve seen Axa showing very good growth? in life insurance, said Marc Effgen of Geneva- based Ferrier Lullin & Cie.

?We have positioned ourselves with a strong balance sheet, positioned ourselves for growth into the future,? Schiro said yesterday.

?We will look at all of the options available and we will be opportunistic? about possible purchases.

Net earned premiums and policy fees gained, rising 2.6 percent to $10.4 billion from $10.1 billion in the quarter, the insurer said. Net investment income climbed ten percent to $4 billion in the first half.