Zurich Insurance Seeks to Boost Investor Confidence, May Lower Target

December 3, 2013 by Carolyn Bandel

Zurich Insurance Group AG Chief Executive Officer Martin Senn will probably reduce a profitability target after Switzerland’s biggest insurer said it may struggle to meet some goals set in 2010.

Zurich Insurance could cut its plan for return on equity to between 12 percent and 15 percent, from 16 percent, according to five analysts surveyed by Bloomberg. The company is scheduled to update investors on Dec. 5. Maeve Gallagher, a spokeswoman, declined to comment.

Senn, 56, has led a public campaign to restore investor confidence in the company’s financial strength following the suicide of Chief Financial Officer Pierre Wauthier in August, which prompted Chairman Josef Ackermann to resign.

The insurer’s third-quarter profit beat estimates last month after quarterly earnings in the first half fell short of analyst expectations and it said targets for its general insurance and home and auto units would be “more challenging.”

“The company now has to prove that it has realistic targets and is again on track,” said Daniel Bischof, an analyst at Helvea AG in Zurich, with a buy rating on the stock. “Regaining lost confidence with new targets won’t be easy. They need to strengthen the management board and investors want to see another clean quarter following the good third-quarter results.”

More Departures

Zurich Insurance has risen 3.5 percent this year compared with a 24 percent rise of the 20-member Bloomberg Europe 500 Insurance Index.

The company on Nov. 14 reported better-than-expected net income rise of $1.1 billion for the third-quarter from $672 million a year earlier.

Since taking over from James Schiro in 2010, Senn, a Swiss native, has worked to shore up earnings, hurt by record-low global interest rates, while seeking to replace a string of departing executives.

Dieter Wemmer, 56, quit as CFO in 2011 to join Allianz SE’s management board, while Mario Greco, 54, former head of general insurance, left the following year to become CEO at Assicurazioni Generali SpA. Global Life CEO Kevin Hogan, 50, resigned in August to join American International Group Inc., with Chief of Staff Ann Haugh departing the same month. On Nov. 19 Group Treasurer Colm Holmes left for Aviva as CFO for the U.K. and Ireland general insurance unit.

Market Share

Zurich Insurance’s “strategic aspirations” include the 16 percent operating profit after tax ROE target created in 2007 and a plan set in 2010 to increase the market share of its Farmers business, which sells U.S. home and auto policies. The company said in November 2012 that in a challenging economic environment with persisting low interest rates “a return of around 2 percentage points below” 16 percent “is more realistic.”

The 16 percent “target they had was just too high given the low rate environment, so it will come down,” said Stefan Schuermann, a Zurich-based analyst with Vontobel Securities Ltd., who has a hold rating. “We need a perspective for the Farmers unit. They need to explain to investors how they want to improve the situation there as they missed their growth targets and may even have lost market share.”

The insurer also planned to reduce its general insurance combined ratio, or claims expenses as a proportion of premiums, by as much as 4 percentage points relative to competitors by the end this year. Zurich said in August it could miss this target. The combined ratio for the nine months ended Sept. 30 was 95.3 percent, indicating profitable underwriting.

–Editors: Jon Menon, Steve Bailey