Zurich CEO Says More Work Needed in Turnaround Businesses as Group Posts 3% Drop in 2014 After-Tax Net Profit
February 17, 2015 by Robert O'Connor, London editor: Robert.OConnor@ambest.com
ZURICH – Zurich Insurance Group Ltd.’s chief executive officer expressed dissatisfaction with the group’s 3% fall in 2014 after-tax net profit to US$3.9 billion, and pointed to further work needed in following its strategic plan.
After-tax profit was US$4.02 billion in the previous year. Business operating profit at the multiline insurer was down by 1% to US$4.63 billion from US$4.68 billion.
“While we made good progress last year in executing the strategy we set out in December 2013, we cannot be satisfied with our 2014 earnings,” CEO Martin Senn said in a statement.
Zurich, Senn added, has “still much to do in our turnaround businesses, and in driving further improvement across the book.”
Senn said Zurich will continue its focus on “three strategic cornerstones”— investing in “distinctive” activities, creating value, and boosting earnings. “This approach is designed to improve our profitability and address the challenges of a prolonged low yield and low growth environment,” Senn said.
In outlining its three-year strategic direction to investors in December 2013, Zurich stressed its role as a “global and composite insurer.” The group said it would consider disposing of poorly performing operations, while concentrating on its strengths.
The announcement of the strategy came at the end of a difficult year for the group. In August 2013, Pierre Wauthier, Zurich’s chief financial officer, was found dead, an apparent suicide. Wauthier’s death was followed by the resignation of Chairman Josef Ackermann (Best’s News Service, Dec. 5, 2013).
Zurich’s nonlife combined ratio improved in 2014 to 97.3 from 98. Net investment return increased to 4.5% from 3.5%. Shareholders’ equity rose by 7% to US$34.7 billion from US$32.5 billion. Return on equity fell to 11.1%, from 11.6%.
Zurich said General, or nonlife, insurance, reported premium increases in local currency terms, largely as a result of contributions from priority territories. The group also pointed to growth in global life, notably in the United States and the United Kingdom.
General insurance reported US$36.3 billion in premiums, compared with US$36.4 billion in 2013. “General insurance made progress in the businesses that are managed for value,” Zurich said.
Global life reported an 18% dollar-based increase in premiums to US$31.8 billion from US$27 billion.
“Global life business operating profit increased by US$1 million to US$1.3 billion, flat in U.S. dollar terms but up 2% on a local currency basis, reflecting the strengthening of the U.S. dollar,” Zurich said.
Farmers Management Services registered a 1% fall in management fees and related revenues to US$2.7 billion from US$2.8 billion. Gross profit fell 1% to US$1.33 billion.
Zurich said the customer-owned Farmers Exchanges, reported “broadly flat” premium activity, “as gains in the second half of the year offset a modest decline in the first half. This compares to a 2% decline in 2013.”
Zurich, which described its cash remittance and capital positions as “strong,” has proposed a full year dividend of 17 Swiss francs. Total group business volumes rose by 6% to US$74.4 billion from US$70.3 billion.
“Our solvency capital continues to be very strong, and we are well on track to deliver more than US$9 billion of cash remittances by 2016, even with the impact from currency headwinds,” Senn said.
The value of the Swiss franc suddenly shot up in January, disrupting currency markets, after the
Swiss National Bank stopped trying to keep it from rising against the euro.
Zurich said it would continue in 2015 and in subsequent years to seek “good progress in improving General Insurance accident year profitability.” The group said its global life business has done well in promoting bank distribution and market growth.
“In global life, we see good momentum in our priority life markets, and expect to start seeing the benefits of in-force management initiatives coming through in our earnings over the next two years,” Senn said.
Cecilia Reyes, chief investment officer, will take on the added role of regional chairman of Asia-Pacific. She will replace Geoff Riddell, who is to retire.
Farmers Alliance Mutual Insurance Co. has a current Best’s Financial Strength Rating of A- (Excellent)
