NEW YORK (Bloomberg) — Zurich Financial Services AG, Switzerland's largest insurer, has increased prices for North America businesses to compensate for a drop in investment income.

As interest payments from bonds, or yields, decline, "we need to make sure we cover that with increased rates on the insurance", Mike Foley, chief executive officer of Zurich's North American Commercial unit, said in an interview yesterday. The entire insurance industry will need to increase prices "if it's going to adapt to the new reality of a lower-yield environment," he said.

Zurich's profit has declined for five straight quarters as customers cut back on coverage and investment income declines amid the financial crisis, while peers including American International Group Inc. and Allianz SE have posted losses. US corporate bond yields have fallen 3.65 percentage points since 2008 to 6.12 percent yesterday, the lowest rate of return since April 2007, according to Merrill Lynch & Co. bond indexes.

Property insurance prices industrywide climbed an average of 4.4 percent in the first quarter and 4.9 percent in the second quarter, according to insurance broker Aon Corp. Zurich is increasing rates for property coverage more than liability protection, Foley said.

Claims have dropped in Zurich's workers' compensation business amid the recession and rising unemployment, Foley said. Unemployment rose to 9.7 percent in August, a 26-year high, according to the US Labor Department.

"As companies reduce their employees and payroll, they tend to keep the more seasoned and experienced workers, and also, people want to be back at work because there is personal stress about whether they are going to lose their job," Foley said. "It ends up, surprisingly, that workers' compensation claims come down in a period of economic stress."

A reduction in claims has "very little effect" on the need to build reserves in the long-term, as medical inflation adds to costs, Foley said.

Construction premiums fell 18 percent in the first half, Foley said. "Construction is off significantly," he said.

The insurer rose 9 centimes to 243.5 Swiss francs at 5.31 p.m. on the Swiss Exchange in Zurich.

The company has gained 7.3 percent this year.