Switzerland's Zurich Insurance Group has reported a fall in its first quarter profits after a 'challenging business environment' hit investment returns.

Net income after tax dropped to $1.06bn (£696m/€823m) from $1.14bn (£747m/€885m) in the year-ago period, the Zurich-based insurer said in a statement. Zurich shares lost 1.2% in opening trade after its net income missed analyst expectations.

"I am pleased with this result as it demonstrates the continued success of our strategy. All our core businesses delivered a high quality operating performance while maintaining focus on underwriting discipline and expense management. We continue to operate in a challenging economic environment with persisting low interest rates against which we have posted strong, high quality underlying profits," said Chief Executive Martin Senn.

"We remain on track to deliver our 2013 targets.... In Latin America, Zurich Santander continues to contribute significantly to our performance, complementing strong organic growth in this strategically important region".

The country's top insurer said operating profit from general insurance, its biggest business, dropped 6% to $807m, but achieved a 1.5 point improvement in the underlying loss ratio for the quarter under review, as compared with the year-ago period. But gross written premiums and policy fees in the general insurance business grew 2% to $10.7bn

The group's life and pension products business reported a 6% increase in operating profit to $308m, owing to lower expenses and higher contributions from its Latin American arm Zurich Santander.

Gross written premiums and policy fees in the life and pension products business rose 9% to $3.7bn, owing to higher volumes of the protection business.

Zurich said its capitalisation ratio under Swiss rules rose to 185% as of January, 2013, compared to178% as July, 2012.