Zurich Insurance plans US$1.5b cost cuts, dividend boost

[ZURICH] Zurich Insurance Group AG will cut costs by US$1.5 billion from 2015 through 2019 as Chief Executive Officer Mario Greco overhauls Switzerland's largest insurer.

The new plan replaces a previous goal to save at least US$1 billion by the end of 2018. Zurich Insurance will also target a dividend payout ratio of 75 per cent of net income after tax, the firm said in a statement on Thursday. A minimum dividend of 17 Swiss francs (S$24) a share will be maintained.

"The insurance industry has a cost issue," Mr Greco said in an interview with Bloomberg Television. "We decided to attack it." Zurich, along with its European rivals, has struggled to improve profitability as lackluster economic growth and record-low interest rates hurt investment income and prices remain subdued in some markets. To boost returns, Mr Greco is selling assets and pushing through changes to the insurer's organization and management.

"The name of the game there is simplification," the CEO, who took over in March, said in the interview. The "business has become very, very complicated over the last years and I'm trying to slim it down and make it simple again." Zurich Insurance's shares have risen 1.6 per cent this year compared with a 11 percent decline in the Bloomberg Europe 500 Insurance Index.

The insurer expects to take restructuring charges of US$500 million on average in both 2017 and 2018 as the firm reviews its technology systems and procurement processes for shared services, according to the statement. Zurich is targeting an after-tax return on equity of more than 12 per cent next year.

"Greco has a mandate to turn around the fortunes of Zurich Insurance after a series of losses dented the company's share price," Charles Graham, senior industry analyst at Bloomberg Intelligence, said in a Nov 11 note. "After taking action to improve underwriting performance, Mr Greco now seeks to make Zurich simpler and more customer-oriented." The CEO wants underwriting performance to improve in the commercial business and to improve the firm's digital offerings. He will also seek new retail partnerships.

BLOOMBERG