Zurich Insurance Group has dropped its £5.6 billion ($12.2 billion) bid for UK-based RSA Insurance Group after revealing its general insurance arm will lose about $US200 million ($285.8 million) in the third quarter.

The Swiss global insurer expects to incur at least $US275 million ($393 million) in losses from the chemical storage explosions that rocked the Chinese port city of Tianjin in August.

The company intends to focus on turning around its general insurance business, its biggest unit, and will conduct an “in-depth review” of the operations.

Last week’s unscheduled business update came on the same day the insurer revealed it has pulled the plug on the RSA offer.

“In light of the above recent deterioration in the trading performance in the group’s general insurance business, Zurich announced… that it has terminated its discussions in connection with a possible offer for RSA,” the insurer says.

“The group’s focus instead will be on taking the necessary actions to deliver on the required performance of the general insurance business.”

Zurich expects “weaker than expected” profitability to persist in its general insurance business during the current quarter, to September 30.

The Swiss insurer has not ruled out further changes to its loss estimates from the Tianjin explosions and will provide an update in November, when third-quarter results are released.

“While this represents Zurich’s current best estimate of the cost for the [Tianjin] event, the nature of many of the losses and the extended remediation period to complete repairs means uncertainty as to the final cost remains,” the insurer says.

Ratings agency Fitch has estimated insured losses from the Tianjin blasts are likely to exceed $US1.5 billion ($2.1 billion).

Zurich earned net income of $US2.06 billion ($2.94 billion) and operating profit of $US2.24 billion ($3.2 billion) in the half-year to June 30.