Zurich May Sell Some Operations
December 5, 2013 by Robert O'Connor, London editor: Robert.OConnor@ambest.com)
Zurich Insurance Group Ltd., which was shaken this year by the apparent suicide of its chief financial officer and the abrupt resignation of its chairman, has unveiled a three-year strategic plan that puts emphasis on its role as a “global and composite insurer.” In a presentation to investors, the multiline insurer said it may dispose of poorly performing operations, while concentrating on its strengths.
The insurer also pledged to increase its operating earnings through careful underwriting and disciplined investment.
“Our new chapter focuses on our strengths in corporate, commercial and select retail markets, where we are very well positioned to capture business opportunities,” Chief Executive OfficerMartin Senn said in a statement.
Senn said the strategy, which will run from 2014 through 2016, will seek to meet the needs of corporate clients that operate internationally. Commercial clients will benefit from a better use of analytics and a deeper understanding of risk, he said, while retail customers will gain from the group’s segmented approach to markets.
Zurich, Senn said, will review its existing operations closely to pinpoint areas that are unprofitable or do not provide sufficient scale.
“We will invest in priority markets but manage other businesses for value,” Senn said. “This will mean improving the profitability of certain businesses, while we will either turn around or exit those that are under-performing.”
By the end of 2016, Senn said, Zurich hopes to remit more thanUS$9 billion to its holding company. “Our continued objective is to deliver protection to our customers, rewarding career opportunities to our people and create sustainable value for our shareholders,” he said.
Asked to choose from several adjectives to describe the plan,Arno Endres, head of research atLuzerner Kantonalbank in Lucerne, Switzerland, opted for “pragmatic.”
Endres said it reflected a widespread acceptance that the market has changed. “It’s just not possible to have the old margins forever,” Endres told Best’s News Service.
Zurich hit the headlines in August 2013, when Pierre Wauthier, its 53-year-old CFO, was found dead, an apparent suicide (Best’s News Service, Aug. 26, 2013). This discovery was followed by the resignation of Chairman Josef Ackermann, amid suggestions that Wauthier blamed Ackermann for putting excessive pressure on him (Best’s News Service, Aug. 29, 2013). In addition to the task of reassuring investors and customers, the turmoil left Zurich with the need to recruit both a chief financial officer and a chief operating officer.
Endres does not believe Zurich’s problems during the summer affected the plan, which, he noted, will be in place for an extended period. He added he was not surprised by the group’s strategic direction.
“We are living in a different environment,” Endres said. “Most market participants have already adjusted in one way or the other to the new realities. And Zurich is doing the same.”
Endres said Zurich’s determination to safeguard its relatively high dividend should please shareholders, many of whom, he suggested, are likely to be private investors.
Events of recent months have raised doubts about Zurich’s long-standing reputation as a high quality company, Endres suggested. The share price has not improved in parallel with those of many competitors, he said.
Endres, who describes himself as “still positive” about Zurich, predicts a growth rate in line with that of the overall insurance market. He does not expect Zurich to make a big acquisition, but regards smaller deals as possible.
“It’s important that they focus on those markets and those fields where they see the potential to grow and not to do everything everywhere,” Endres said. “If they do that, they have a good chance to come back to the former premium visibility in terms of competitors.”
In November, Switzerland’s financial services regulator announced two investigations had cleared the company of any improprieties in Wauthier’s death (Best’s News Service,Nov. 4, 2013). The first investigation found Zurich had exerted no “undue or inappropriate pressure” on Wauthier. The second “found no irregularities with regard to financial reporting,” the group said.
In outlining its three-year plan, Zurich identified three priority areas — corporate, commercial mid-market, and retail — which, it said, absorb 62% of its capital.
In the first area, Zurich said it has the “brand, scale, expertise and capital strength” to attract large corporate clients that themselves are seeking global business.
“A significant opportunity exists to grow existing relationships across new markets, for example delivering combined life and general insurance solutions,” Zurich said in a statement.
Zurich said the investment it has planned for its commercial mid-market business will help it “develop a more detailed understanding of the risk landscape and meet customers’ product and pricing needs,” particularly inthe United States, where it has good market strength. Initial lessons learned inthe United States, the group said, will then be applied in other markets.
Within retail, Zurich said, strong price challenges from niche insurers, combined with the evolving behavior of customers, have dictated a shift of emphasis to retail lines that generate the highest margins. The group said it will seek to meet specific customer needs and improve its distribution.
Zurich included Global Life and general insurance within its second category — which accounts for 38% of capital — whose future is likely to be considered closely.
Zurich’s Global Life in-force business offers good prospects, notably in continentalEurope, Zurich said. Some nonlife operations will remain within the group, but will not be seen as high priorities for investment, Zurich said.
Zurich Insurance Co. Ltd. currently has a Best’s Financial Strength Rating of A+ (Superior).
(By Robert O’Connor, London editor: Robert.OConnor@ambest.com)