Posted on 30 Nov 2012 by Neilson
Switzerland's biggest insurer, Zurich, said it is making "good progress" to achieving targets for 2013 and expects to pay an "attractive" dividend.
The company, which is holding an investor day in Zurich, has cut costs by $200 million as it targets expense reductions in "mature markets" of $500 million by the end of next year, the insurer said today in an e-mailed statement.
Chief Executive Officer Martin Senn said he's confident that Zurich Insurance's cash flows and capital position will allow an "attractive and sustainable dividend." The insurer may raise the dividend for 2012 to 17.50 francs ($18.85), according to data compiled by Bloomberg, after leaving the 2011 payout unchanged at an 11-year high of 17 francs a share.
The statement "should provide the market with reassurance on the high dividend-paying capacity," said Stefan Schuermann, a Zurich-based analyst with Vontobel Holding AG who has a hold rating on the stock.
The stock rose 2.3 percent to 236.20 francs at 2:01 p.m. in Zurich, giving the company a market value of 35 billion francs. It has increased 11 percent this year, lagging behind the Bloomberg Europe 500 Insurance Index (BEINSUR)'s 26 percent gain.
Some $4 billion of cash was remitted from the company's various units to the group this year, with about $400 million consumed by the German non-life business after a writedown, Chief Financial Officer Pierre Wauthier said.
While the insurer is targeting a business operating profit after tax return on equity of 16 percent in the long term, it reiterated today that in the current environment, a goal of 2 percentage points below that is more realistic.
Zurich Insurance's combined ratio, a measure of profitability in general insurance, "is not where we want it to be," Senn told analysts and investors, adding that it's moving in the right direction. The company plans to improve its combined ratio in general insurance, it's biggest unit, by 3 to 4 percentage points relative to global competitors.
Still, Vontobel's Schuermann said in a note to investors that this target "appears a real challenge with peers improving as well."
Mike Kerner, Zurich Insurance's head of general insurance, said Hurricane Sandy, which made landfall along New Jersey's coast on Oct. 29, may rank as the second most-costly Atlantic storm, after Katrina, which cost $105 billion in 2005. He added the impact on Zurich Insurance remains unclear.
The insurer may see about $50 million insured losses in the fourth quarter from the U.S. drought earlier this year, the worst in U.S. history, following the same underwriting loss in the previous three months. It has about $600 million in gross written premiums in U.S. crop insurance, or 2 percent of general insurance's total written premiums, Kerner said.
Zurich Insurance reported a 62 percent decline in third- quarter profit earlier this month following a $550 million write-off at its German general insurance business. It's targeting emerging markets such as Latin America, Middle East, Africa and the Asia-Pacific region to bolster earnings.
The company last year bought 51 percent of Banco Santander SA (SAN)'s Latin America insurance business and Malaysian Assurance Alliance Bhd. Latin America now represents 24 percent of the total new business value, said Kevin Hogan, who head's the company's life insurance business.