Swiss Life CEO Frost Sees ‘Sweet Spot’ in Asset Management Push

Aug 12, 2014 2:27 am ET

Aug. 12 (Bloomberg) -- Swiss Life Holding AG is increasing the funds it oversees for outside clients at a faster pace than planned, helped in part by the legal woes at Switzerland’s banks, said Chief Executive Officer Patrick Frost.

Frost, who became CEO on July 1, said Switzerland’s biggest life insurer will expand assets under management, which include fixed income and real estate, by at least 7 percent to 30 billion Swiss francs ($33 billion) this year, reaching that milestone a year ahead of schedule.

“In competition with larger banks and institutions here in Switzerland, it certainly helped that many of them were occupied with other things,” Frost said in an interview at the company’s lakeside headquarters in Zurich, referring to a U.S. tax probe that’s led to the closure of the oldest Swiss private bank and a record fine for Credit Suisse Group AG. “It has given us a certain sweet spot.”

Swiss Life, which established its asset-management unit during Frost’s term as chief investment officer in 2012, is among a growing number of insurers competing with banks for an estimated 16.8 trillion euros ($22.8 trillion) in assets in Europe. He’s seeking to increase the fee income managing money provides at a time when record low interest rates are hampering earnings from life insurance.

The Swiss insurer will probably report that first-half net income dropped 3.4 percent to 456 million francs when it publishes results tomorrow, according to the average estimate of seven analysts surveyed by Bloomberg. Profit a year earlier was buoyed by a 60 million-franc accounting gain.

Operating earnings from asset management, which includes the third-party fund business, probably rose 13 percent to 80 million francs, according to the median estimate of six analysts.

Swiss Banks

Swiss Life is the third-best performer in the 32-member Bloomberg Europe 500 Insurance Index this year, advancing 13 percent to value the company at 6.7 billion francs.

Credit Suisse was fined $2.6 billion euros by the U.S. in May after admitting it helped Americans evade taxes, while U.S. authorities are still investigating firms including Julius Baer Group Ltd. and HSBC Holdings Plc’s Swiss unit. Wegelin & Co., a more than 270-year-old Swiss bank, was forced out of business by a U.S. probe that led to a guilty plea in 2013. UBS AG, the country’s biggest bank, is facing inquiries in France, Germany and Belgium.

Swiss Life’s status as a staid life insurer “will help them attract money from pension funds,” said Peter Casanova, a Zurich-based analyst with Kepler Cheuvreux who has a buy rating on the stock. “Time and again there were cases in which institutional investors were not completely satisfied with banks or their performance.”

Possible Purchases

Swiss Life is not only the country’s biggest life insurer, but also the biggest real estate investor. It has eight properties on Zurich’s Bahnhofstrasse, the most owned by a single investor on the city’s ritziest shopping street.

Frost, who holds degrees in natural science, economics and law, wants to add about 3 billion francs in assets under management each year “organically,” and said the company would also consider acquisitions of small to mid-sized Swiss, German or French asset managers focused on fixed income or real estate. He spoke in a June 26 interview and his office reconfirmed the comments yesterday.

The 46-year-old CEO has spent his career in insurance asset management, starting in 1996 as an analyst and subsequently a portfolio manager for Switzerland’s Winterthur Group. He spent two years in the U.S. as a corporate bond manager for Winterthur Investment Management, before becoming head of fixed income in 2001. He joined Swiss Life in 2006 as CIO and a member of the executive board.

New Money

The expansion into managing money for outside clients led to net new investments of about 6 billion francs last year from institutional mandates in fixed income and real estate. As pension funds face increasing cost and regulatory pressure, they are seeking traditional asset managers, Frost said.

“We don’t offer highly leveraged vehicles or complex products, we just buy fixed income and have a buy and manage strategy,” Frost said. “It helps that we positioned ourselves in an area in which there is a large demand for active asset management, namely real estate and fixed income.”

The insurer oversees 155 billion francs, including the funds it manages for its own insurance operations. The asset management unit reported a 21 percent increase in operating profit to 166 million francs last year, meeting a 2015 target of boosting earnings by 20 percent from 2011.

‘Track Record’

Swiss Life’s third-party fund unit is a late entry into a crowded field. Munich-based Allianz SE, Europe’s biggest insurer, makes about a third of its annual profit from asset management units Pimco and Allianz Global Investors, while Paris-based Axa SA and Legal & General Group Plc of London already have large asset management units.

Frost’s appointment “signals to investors that asset management will only gain in importance within the group,” said Daniel Bischof, a Zurich-based analyst with Helvea who has a buy rating on Swiss Life. “Already in the management of the insurance assets his position was key and he established a good track record in managing the low yield environment.”