Banks

RBS share drop accelerates on stress test flop

Stressed. Shares in Royal Bank of Scotland have accelerated their losses this morning, falling over 4.5 per cent after the state-backed lender came in bottom of the heap in the Bank of England’s latest stress tests. RBS failed the toughest ever stress tests carried out by the BoE, with results this morning showing the lender’s […]

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Capital Markets, Financial

BGC Partners eyes new platform to trade US Treasuries

BGC Partners plans to launch a new platform to trade US Treasuries early next year, in a bid to return to a market in the middle of evolution, according to people familiar with the plans.  The company, spun out of Howard Lutnick’s Cantor Fitzgerald in 2004, sold eSpeed, the second-largest interdealer platform for trading Treasuries, […]

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Financial

Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

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Currencies

Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

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Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Categorized | Insurance

Zurich: bland ambition


Posted on November 17, 2016

Simplicity may be a virtue to new Zurich Insurance boss Mario Greco; ambition certainly is not. On Thursday the CEO, who joined from Generali in March, branded previous growth targets “a mistake” and revealed plans to slim down the insurer and grow its dividend. Cost savings should allow him to achieve this — but do not expect much in the way of earnings growth.

In Swiss franc terms, Zurich has underperformed the FTSE Eurofirst 300 Insurance index by 21 per cent over five years. Blame that on a dividend that has not increased since 2010, volatile revenues and operating costs that grew 9 per cent a year between 2011 and 2015. A series of big claims in US commercial property last year did not help, either; they forced Zurich to drop a bid for UK rival RSA.

This year’s expected SFr17 per share dividend is covered by forecast earnings, unlike last year’s payout. And although $500m of restructuring costs will be absorbed over the next two years, Zurich says they will be offset “dollar for dollar” by falling expenses. More cost cuts could support higher dividends. Take 2016’s forecast net income of $3.3bn. Assume an additional $500m in savings by 2019, taking the total to $1.5bn. The additional profit, taxed at 30 per cent, could result in dividend increases of about 8 per cent a year in each of those three years. Any revenue growth in Zurich’s largely western markets could boost that a little more.

Such a high payout ratio carries risk. It would be hard to avoid cutting the dividend if there were a sudden rise in claims. Organic earnings growth, generally correlated to GDP, will be subdued. But the alternatives are worse. Looser underwriting is obviously riskier, while acquisitions are expensive — witness Allianz preparing to return its war chest to shareholders.

In a low-yield environment, that suggests a strong balance sheet and a dividend yield of 6 per cent is just the kind of unexciting, unambitious insurer that shareholders want to own.

Email the Lex team at lex@ft.com