Zurich Insurance Rises Most Since 2011 on $3.5 Billion Cash Haul

Aug 07, 2014 9:43 am ET

Aug. 7 (Bloomberg) -- Zurich Insurance Group AG, Switzerland’s biggest insurer, surged after saying it will distribute more than $3.5 billion in cash this year and operating profit climbed.

The shares advanced as much as 3.7 percent, the biggest increase since November 2011, and were up 3 percent at 268.4 francs at 3:30 p.m., valuing the company at 40.1 billion Swiss francs ($44 billion). The Bloomberg Europe 500 Insurance Index rose 0.1 percent.

Zurich Insurance told investors in December that it plans to distribute at least $9 billion in cash to the holding company over the next three years, which can then be used for dividends or acquisitions. The bigger-than-expected cash remittance for this year may bolster payouts to investors, said Stefan Schuermann, an analyst with Vontobel Holding AG.

“The expected above $3.5 billion cash remittance driven by general and farmers’ insurance is good news for the dividend,” Schuermann, who is based in Zurich and recommends clients hold the stock, said in an e-mailed report.

The insurer increased the payout to 17 francs a share three years ago and has held it steady since.

Profit Rises

Zurich Insurance said today operating profit rose 32 percent from a year earlier to $1.24 billion. Earnings from general insurance, the firm’s biggest business, surged 44 percent to $807 million, as losses from natural catastrophes dropped to $175 million from $435 million, it said in a statement.

“Operating profit was slightly stronger than expected driven by general insurance.” Daniel Bischof, a Zurich-based analyst with Helvea, said by telephone.

Chief Executive Officer Martin Senn has cut 670 jobs to help lower costs by $250 million annually and boost profit. In December, Zurich reduced its target for return on equity, a measure of profitability, to between 12 percent and 14 percent by 2016 from 16 percent. The figure was 10.8 percent in the second quarter, rising from 10.7 percent a year earlier, it said.

The combined ratio, a key profitability measure for non- life insurance, improved to 95.7 percent from 99.1 percent.

“We have seen clear progress on the execution of our strategy and delivery against our targets,” Senn said.

Tax Effect

Net income rose to $837 million from $789 million a year earlier. That was less than the $947 million average estimate of seven analysts surveyed by Bloomberg, as the company paid more in taxes.

Zurich Insurance reported a tax rate of 32.2 percent on operating profit in the second quarter and that lowered net income by as much as $90 million, Chief Financial Officer George Quinn said during a conference call. A level of 23.5 percent can be considered normal, he said.

Zurich has incurred restructuring costs of $470 million this year with the remainder of a $520 million target to be achieved in the remaining months, Quinn said.

Senn said there will be no further job cuts. From the 670 reductions, about 300 positions were let go, half of which were in Switzerland. Zurich Insurance dealt with the remaining positions through natural fluctuation, not filling vacancies and moving employees to other jobs, he said.