(AP) -- Zurich Financial Services, formed from the merger of Zurich Insurance Co. with the financial arm of British American Tobacco, said Monday its net first half-profit rose by 17 percent on last year to $1.687 billion.

(AP) -- Zurich Financial Services, formed from the merger of Zurich Insurance Co. with the financial arm of British American Tobacco, said Monday its net first half-profit rose by 17 percent on last year to $1.687 billion.

Last year's first-half profit was $1.44 billion. Operating income also rose 17 percent, to $2.539 billion from $2.168 billion.

Zurich Financial credited its improvement in earnings mainly to its insurance operation and noted an "increasingly positive" effect from the merger. The deal was completed last fall.

The company expects the merger to produce at least $500 million in annual cost savings by the end of 2001.

Rolf Hueppi (file picture), chairman and chief executive, said integration has progressed "more rapidly than originally forecast."

The group covers financial services including insurance, asset management and private banking.

Zurich Financial is 57 percent owned by Zurich Allied AG of Switzerland and 43 percent by Allied Zurich plc of Britain.

Shares of the Swiss parent, Zurich Allied, were up 1.1 percent, or SFr10 ($6.70), at SFr909 ($606) in early trading.

Hueppi said Zurich plans to "significantly expand our Internet technology beyond its function as a dialogue and distribution instrument," and said it has started to build integrated e-business platforms.

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