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By John Letzing and Ian Walker 

ZURICH-- Zurich Insurance Group AG has called off a planned acquisition of U.K.-based RSA Insurance Group PLC as the Swiss firm focuses instead on recovering from losses incurred by the deadly explosions in China last month.

Zurich Insurance revealed on Monday it was exposed to the deadly explosions at a port in Tianjin, China and expects losses of about $275 million as a result. That will compound other difficulties at the company's largest unit, general insurance, leading to an operating loss for that unit in the third quarter of roughly $200 million, the Zurich-based company said.

The deterioration prompted Zurich Insurance to end its talks with RSA, the company said, adding that an "in-depth review" of the general insurance business is now under way.

A spokesman for Zurich Insurance said the company found nothing during its due diligence that caused it to halt its pursuit of RSA, although that process hadn't been completed.

In its own statement, RSA confirmed that talks with Zurich Insurance had ended, but said it has made recent progress in strengthening its position as a stand-alone company. Still, shares of RSA tumbled 21% in afternoon trading, while shares of Zurich Insurance fell more than 2%.

The scuttling of Zurich Insurance's pursuit of its U.K. peer is the latest effect felt by businesses as a result of the explosions roughly a month ago at the Tianjin port, which were caused by the improper storage of hazardous chemicals. The explosions killed more than 100 people, and created logistical glitches and supply-chain issues that are expected to hinder companies using the facility for months to come.

Insured losses resulting from the disaster could top $1.5 billion, according to an estimate from Fitch Ratings.

Vontobel analyst Stefan Schürmann noted that Zurich Insurance does a significant amount of business offering coverage for many of the automobiles shipped through Tianjin. However, Mr. Schürmann said the estimated amount of the company's exposure to the disaster is "higher than expected."

The disaster comes at an inopportune time for Zurich Insurance, which had disclosed in July that it was interested in buying RSA. Last month, the Swiss firm proposed making an $8.8 billion acquisition offer, just hours before a deadline imposed by U.K. regulators. RSA said at that time that it was willing to recommend the bid to its shareholders.

The deal was intended to help bolster Zurich Insurance, at a time of low investment returns and flagging profits. Zurich Insurance and RSA both sell insurance to corporations, and had business units including those in the U.K. that were potentially complementary.

Mr. Schürmann, the analyst, said he was somewhat surprised that the proposed deal was pulled entirely, given that the two companies had indicated relatively recently that they were talking it over. However, he said, investors wary of an extended integration of the firms may be relieved.

In addition to losses stemming from the Tianjin port disaster, Zurich Insurance said it expects a $300 million impact on its reserves in the third quarter primarily related to its U.S. auto liability business.

RSA said on Monday that Zurich Insurance's acquisition interest was unsolicited, and that the U.K. firm has made "good progress" on its continuing overhaul.

That overhaul began after it appointed former Royal Bank of Scotland Group PLC Chief Executive Stephen Hester as CEO early last year. The firm has raised fresh capital, and earlier this month agreed to sell its operations in Latin America to Suramericana SA, the insurance subsidiary of Grupo de Inversiones Suramericana.

Mr. Hester was appointed after his predecessor, Simon Lee, abruptly left the company at the end of 2013 amid difficulties at RSA's Irish unit. Earlier that year, RSA opened an investigation of the Irish unit's claims and finance functions after a routine audit discovered a number of issues.

Write to John Letzing at john.letzing@wsj.com and Ian Walker at ian.walker@wsj.com

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(END) Dow Jones Newswires

September 21, 2015 11:21 ET (15:21 GMT)