Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Currencies

Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

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Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

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Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Banks

Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

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Archive | Insurance

UK insurers warned by regulator over use of big data

Posted on 22 November 2016 by

The head of the UK’s Financial Conduct Authority has warned insurers there should be limits to their use of big data so groups of customers are not unfairly penalised.

Speaking to the Association of British Insurers, Andrew Bailey said there had been “a revolution in our ability to capture and use information” but added that there had to be boundaries on the way that information was used. 

Data is an increasingly contentious area as insurers seek to use information to make more accurate pricing decisions. This month Facebook blocked Admiral, the car insurer, from using posts on the social media site to make decisions about pricing. Admiral had hoped that the language used in the posts would provide clues about driving style. 

Mr Bailey said the use of big data could allow the industry to base its decisions on individual behaviour rather than assumptions about different groups of people. This could be a good thing in car insurance, he said, because it could encourage better driving.

But he added that in other cases there were dangers — for example in using data about which customers were likely to shop around for policies.

“Big data could be used to identify customers more likely to be inert, and insurers could use that information to differentiate pricing between those who shop around and those who do not. The latter pay more and thereby can cross-subsidise those who do shop around,” he said.

“We are … asked to exercise judgment on whether as a society we should or should not allow this type of behaviour. To simplify, our view is that we should not,” he added.

Mr Bailey also weighed in on the debate surrounding the use of genetic data to influence pricing for health and life insurance. 

“The implications for life insurance are potentially profound … Now, maybe the reaction to improved identification is to say ‘it is what it is’ and we accept the implications for purchasing life insurance. Or, maybe we say that it creates unacceptable divisions within society — outcomes that are not acceptable for society in terms of access to insurance,” he said. He added that the solution to the issue was something for the government, rather than just regulators, to decide.

Jamie Monck-Mason, an executive director at Willis Towers Watson, welcomed Mr Bailey’s comments. “It is encouraging to see that the FCA is open to — and indeed positive about — the use of big data by insurers, albeit in the context of wider public policy principles,” he said. “The use of big data opens up a world of commercial opportunities for the insurance sector — and it is clear that Mr Bailey welcomes those opportunities for the good of the sector — but it is refreshing to see the FCA inviting insurers to look at the longer term and the bigger picture.”

Willis Towers Watson executive to get $21m pay-off

Posted on 22 November 2016 by

A top executive at Willis Towers Watson is to receive a pay-off of up to $21m when he leaves the insurance broker and consultant at the end of the year, according to documents analysed by the Financial Times.

The payment to Dominic Casserley, the deputy chief executive, comes at the end of a year when shares in Willis Towers Watson have sharply underperformed those of its two main rivals.

The company said last month that Mr Casserley, who headed insurance broker Willis before it merged with Towers Watson at the start of this year, would leave when his contract expires at the end of 2016.

According to company filings, non-renewal of Mr Casserley’s contract will trigger a cash payment of about $8m and share-based awards worth about $13m. He will also qualify for about $200,000 of other benefits.

“In my experience this is a generous payment for the insurance sector,” said Jo Keddie, a partner specialising in employment at London law firm Winckworth Sherwood.

Willis Towers Watson declined to comment on Mr Casserley’s pay.

Caroline Doran Millett, an employment partner at law firm Royds Withy King, said that the documents showed that Mr Casserley was due to receive the payments but criticised the language used by the company as “unhelpful and opaque”.

Willis Towers Watson was formed out of the $17bn merger of Willis, an insurance broker, and Towers Watson, a pensions and healthcare adviser.

Mr Casserley was chief executive of Willis and stayed on with the title of president and deputy chief executive. He received a salary of $1m per year as well as bonuses. When his departure was announced, Willis Towers Watson chairman Jim McCann said that Mr Casserley, who co-led the integration process, was “crucial to the design, negotiation and success of the Willis Towers Watson merger”.

“On behalf of both the legacy Willis board and the current Willis Towers Watson board, I want to thank Dominic for his many contributions, which will benefit the company and all its stakeholders for years to come,” he said.

Shares in Willis Towers Watson, which is based in London but listed in New York, have fallen by just under 4 per cent since the merger was completed. Shares in rivals Aon and Marsh & McLennan have both risen more than 20 per cent in the same period.

The company reported a net loss of $32m for the three months to the end of September against a pro-forma profit of $117m in the same period a year ago although an amortisation charge was responsible for much of the change.

US health insurance mega-mergers on trial – key dates to watch

Posted on 21 November 2016 by

Four of the five largest US health insurers are headed to court to try to salvage two mega-mergers from being blocked by federal and state competition authorities, who claim that the deals will stifle innovation and consumer choice.

Opening arguments kicked off in federal court on Monday in a lawsuit brought by the US Department of Justice and several states’ attorneys generals seeking to stop Anthem from completing its $48bn purchase of rival Cigna.

In just a few weeks, before a different judge in the same Washington, DC court, attorneys for Aetna and Humana will head to trial to try to save their proposed $37bn tie-up. The insurers say that their deals will help them innovate and reduce costs, while federal and state authorities say that the wave of consolidation will stifle competition to patients’ detriment.

Antitrust officials sued to block the planned deals earlier this year. The closely watched trials come as the US health insurance industry attempts to realign itself after sustaining heavy losses on plans offered through the Affordable Care Act, the landmark health-insurance reform legislation whose fate now hangs in the balance as Republicans prepare to retake the White House.

Here are some key dates to watch:

November 21 – Opening arguments begin in the Anthem/Cigna trial before US District Judge Amy Berman Jackson in Washington, D.C. federal court. She will first hear evidence and testimony on how the proposed deal would affect the overall national health insurance market.

December 2 – Both sides in Anthem/Cigna will submit their proposed findings – intended to underscore trial evidence and testimony they hope will guide the judge in drawing her conclusions – for the first phase of the trial.

December 5 – Trial begins for the Aetna/Humana merger before US District Judge John Bates in Washington, DC. The Anthem/Cigna trial will take the week off.

December 12 – Testimony resumes in Anthem/Cigna, in a second phase that is expected to focus on the deal’s implications for local commercial markets and healthcare rates.

December 29 – Parties in the the Aetna/Humana case are scheduled to submit their proposed findings to the judge.

December 30 – Closing arguments scheduled for the Aetna/Humana trial before Judge Bates. The Anthem/Cigna trial is also scheduled to end by this date.

December 31 – Original closing date for the Aetna/Humana merger; Aetna’s executives said on a recent conference call that they now expect the deal to close sometime in 2017. The company will owe Humana a $1bn termination fee if it does not clear the final hurdles.

January 4 – Parties in the Anthem/Cigna trial will file their proposed findings from the second phase of the trial to Judge Jackson.

January 31 – Original closing deadline for Anthem/Cigna merger. However, the parties have the option to extend that to April 30, 2017. Anthem is on the hook for a $1.85bn termination fee if the deal fails to close.

End of January 2017 – Judge Jackson is expected to issue her ruling on Anthem/Cigna by the end of January, Anthem’s chief executive said on a recent conference call with investors. There is no indication about when Judge Bates will rule on Aetna/Humana, although all of the insurers have argued for a speedy resolution to help part the clouds of uncertainty that the litigation has created.

UK life insurers can help boost infrastructure

Posted on 21 November 2016 by

As darkness fell one cold November evening in 1817, the citizens of Newcastle upon Tyne witnessed what must have seemed like a miracle — the city’s main streets were some of the first in the UK to be illuminated by gas, with the finance, and indeed management, provided by a local insurer, the Newcastle upon Tyne Fire Office.

UK life insurers and pension funds, which today manage nearly £3tn of assets, have been investing in the real economy for centuries. Insurers — with their need to match illiquid long term liabilities, such as annuities, with investments in corresponding long term illiquid assets — have long been attracted to investing in infrastructure. And in recent years persistently low interest rates have made infrastructure potentially even more attractive as insurers intensify the search for good returns for customers.

The appetite is certainly there. And so, it appears, is the demand. It is a rare point of agreement in post-referendum Britain that the country needs a new deal for greater infrastructure investment — whether in mega-projects such as extra airport capacity, further investment in schools, hospitals and medical centres, or investment in the renewables sector.

But insurers can only invest if the conditions are right. It is no good asking us, as stewards of our customers’ pensions and savings, to invest unless we can get an appropriate return for them. And at the moment a series of policy and regulatory own goals are stopping the UK from entering a new era of major infrastructure investment.

How have we reached such an impasse? First, the emerging regulatory environment does not support insurers’ critical role as long-term investors. Regulation has created perverse incentives for companies to become highly conservative, cautious and bureaucratic in where they invest, shifting from equity to sovereign debt and corporate bonds. We are being forced to invest in monochrome and not in technicolour. The excessively rigid new Europe-wide insurance capital regime, “Solvency II”, is a case in point. And the significant flow of investment into so-called lower risk assets potentially creates an asset bubble — and bubbles inevitably burst.

Moreover, overseas investors have greater freedom to invest in the UK than we do. Imagine I want to make a $100m investment in a 20-year bond backing a wind farm. Canadian regulators, for example, would make a Canadian insurance company hold additional capital of $3m. But to make the same investment under the Solvency II rules a British company would need to hold capital of above $10m. Where is the sense in that — especially when, if the conditions were right, UK insurers could make the investment, contribute to Britain’s infrastructure and British pensioners could enjoy the investment returns?

Governments have tried to encourage private sector investment in infrastructure. But if the projects are not there and take too long, companies will not come on board. For example, the Roskill Commission was set up nearly half a century ago to look at a third airport for London. We have only just made a decision on a third runway at Heathrow and not even broken soil yet. In contrast, Beijing’s second international airport is scheduled for completion in June 2019, only six years after approval was granted.

Here are two ways to encourage insurers to invest in infrastructure. First, lighten the regulatory burden that unduly limits how insurers invest and establish a principles-based regime that leaves greater room for the exercise of judgment and allows for well-managed risk taking. Second, government must be more consistent in how it structures the finance for major infrastructure projects — for example, by taking on unusual planning or unproven technology risks. These are simple remedies to a longstanding problem, but they could generate a great dividend for the UK.

The writer is group chief executive of Aviva

Insurer AIG in mortgage lending push

Posted on 20 November 2016 by

The insurer AIG is to make a push into residential property loans with plans to make “direct investments” in mortgages.

Doug Dachille, chief investment officer of the largest US insurer by market capitalisation, told investors that increasing AIG’s allocation to residential mortgages was one of his “key initiatives”.

Insurers have been exploring alternative asset classes in the face of ultra-low bond yields, which are hurting their returns, although their portfolios are still dominated by traditional fixed-income investments. 

Deep Banerjee, an insurance specialist at S&P Global Ratings, said the industry’s aggregate exposure to direct residential loans was only about 1 or 2 per cent.

At present AIG has less than $4bn of residential mortgages on its books, a small fraction of its $515bn balance sheet, although the insurer is a bigger operator in other real estate markets.

The group has about $24bn worth of commercial mortgages and last week disclosed the sale of three high-rise office towers, a retail mall and five-star hotel in Seoul.

Mr Dachille said that AIG’s residential portfolio had been “limited” in large part because it had already been exposed to the housing market through its mortgage insurance business, United Guaranty Corporation.

AIG struck a deal in the summer to sell UGC, the biggest US private sector mortgage insurer, for $3.4bn.

Speaking at AIG’s investor day in New York on Friday, Mr Dachille did not quantify by how much the company wanted to increase its exposure to residential mortgages.

However, a presentation slide implied that by doing more mortgage loans, the insurer aimed to replace a big chunk of the annual profits of about $400m that it would forgo by selling UGC.

“Direct investments in residential mortgages rebalance exposure,” the slide said.

“As we speak now, the team is working on a number of transactions to gradually increase the scale of the activity,” Mr Dachille said in his presentation. As well as purchasing loans, he said these included managing securitisations and reinsurance deals.

The move would give more financial backing to the $1.9tn US residential mortgage market, the most important consumer credit sector. Banks have been in retreat since the financial crisis as they grapple with tougher regulations and mis-selling penalties.

Non-banks are on track to account for more than half of US mortgage originations in 2016 for the first time since Inside Mortgage Finance began tracking the market 30 years ago.

AIG does not intend to originate residential mortgages itself, however. Instead, it plans to acquire loans from direct mortgage lenders — both banks and non-banks — and securitise them. The insurer is run by Peter Hancock, a former JPMorgan banker who was a Wall Street pioneer in credit derivatives.

AIG was brought to its knees in the financial crisis, racking up huge losses on credit derivatives, and had to be bailed out by taxpayers for about $185bn.

It has since shrunk significantly, repaid the bailout funds and returned to profitability. But more recently it has faced calls from activist billionaire Carl Icahn to improve returns and accelerate the pace of disposals. Last week the group struck a deal to sell its life insurance business in Japan for a $430m loss.

China corporate raider Baoneng in new boardroom battle

Posted on 20 November 2016 by

Baoneng Group, the swashbuckling insurance conglomerate controlled by China’s fourth richest man, has waded into another boardroom battle, months after pursuing a hostile takeover of China’s largest residential developer.

Shares in glass producer CSG Holding rose as much as 21 per cent in Shenzhen last week following the resignation of its chairman, chief executive, chief financial officer, four vice-presidents and two independent directors. The biggest gains came after Baoneng published a letter to CSG employees accusing CSG executives of misconduct and announcing a series of strategy changes and optimistic growth targets.

The incident marks the latest tussle between corporate management and activist shareholders. Such battles were rare in China until recently, but the rapid ascent of cash-rich insurers has emboldened them to play the role of corporate raiders. Yao Zhenhua, the reclusive founder of Baoneng, ranked fourth on Hurun Report’s annual China Rich List in 2016 with estimated wealth of $17.2bn, up from 204th a year earlier.

Earlier this year, Baoneng sought to replace the board of property developer China Vanke after becoming its largest shareholder through unsolicited stock purchases on the secondary market. The moves prompted Vanke’s chairman to label Baoneng a “barbarian”.

A day after Baoneng’s letter to CSG employees last week, CSG issued a statement through the stock exchange clarifying that the Baoneng letter “was not really issued by the company” and that Baoneng only “used the format” of an official CSG disclosure. Some local media reports gave the impression the letter came from the company. CSG’s management added that the company was operating normally, despite the string of resignations.

Baoneng is CSG’s largest shareholder, controlling 24.3 per cent of the company through various affiliates. Executives from Baoneng-controlled Foresea Life Insurance have taken over from the departed CSG executives, the official Securities Times reported on Friday. Baoneng said in its letter that it aimed to increase CSG’s profits to more than Rmb10bn but gave no timeframe. CSG earned Rmb620m in 2015.

“CSG’s leading position in float glass, deep processing, solar energy and ultra-thin glass is inseparable from the strength of its management team. How this huge earthquake among top management affects daily operations needs to be closely watched,” Qiu Youfeng, construction materials analyst at Haitong Securities, wrote on Friday. “It is not obvious what Foresea Life’s intentions are.”

Baoneng also pledged in its letter to provide funding support to CSG. Baoneng has considerable cash at its disposal because Foresea is one of several once-obscure insurers that have quickly scaled the premium rankings through aggressive sales of universal insurance policies. Anbang Insurance, which has acquired a string of global prestige assets over the past three years, has followed a similar strategy.

The products have attracted scrutiny from regulators this year because they are essentially wealth management products rather than traditional protection-style insurance policies.

On Friday, Shenzhen’s securities regulator sent a letter to CSG noting media reports about a “battle for control” and “instability” at the company, according to a CSG exchange filing. In language that hinted at regulators’ unease over rancorous boardroom disputes playing out in public, the letter urged the company to “maintain goodwill communication” and “negotiate in a friendly way”.

@gabewildau

New measures to stop fraudsters scamming UK pensioners

Posted on 19 November 2016 by

Cold calling of pension savers will be banned by the government in an attempt to stem the tide of fraud against savers unleashed by George Osborne’s shake-up of the pensions system.

Philip Hammond, the chancellor, will announce plans to make cold calling of pension savers illegal in his first Autumn Statement as part of a wider crackdown on scams.

Around 11m pensioners are being targeted annually by cold callers, according to official estimates, many of whom are scammed with offers promising unrealistic returns, such as the chance to invest in a new hotel in an exotic location.

Pension scams have been a growing concern for policymakers since Mr Osborne’s flagship changes to pension rules in April 2015 that gave millions of over-55s full freedom to cash in their cash, opening opportunities for fraud.

Almost £19m was lost to pension fraud in the first year of the pension freedoms, as over-55s cashed in around £6bn of their retirement savings.

Under the government’s plans, all cold calls where a business has no existing relationship with the individual will be forbidden.

Those includes scammers targeting people who inadvertently “opt in” to receiving third-party communications.

Enforcement action by the Information Commissioner’s Office could include fines of up to £500,000.

In addition, the government wants to give pension providers more power to block suspicious transfers and to make it harder for scammers to set up a pension plan to facilitate fraudulent transfers.

“A ban on cold calling is very good news,” said Mick McAteer, co-founder and co-director of the Financial Inclusion Centre, a think-tank.

“A ban goes part way to dealing with the risks created by the badly thought-through pension freedom reforms.”

The government is expected to outline further steps on its proposals in the 2017 Budget.

China’s Zhongan sees scope for offbeat insurance

Posted on 18 November 2016 by

Medical insurance often becomes invalid if the customer is drunk. But during the football World Cup in 2014, Shanghai-based Zhongan Insurance turned that rule upside down by offering Chinese football fans a policy specifically for self-inflicted liver damage.

It cost less than $1 and covered sports enthusiasts against alcohol poisoning for 30 days — paying out up to Rmb2,000 ($290) for hospital fees. It soon came to be known as “watching-football-drinking-too-much” insurance.

This has not been Zhongan’s only foray into more specialist areas of China’s insurance market. Another of its policies, called “high heat”, reimburses customers when the temperature hits 37°C. Another insures against flight delays — and, in many cases, pays out while the customer is still waiting in the departure lounge.

But while such products might seem niche, the company behind them is anything but. From a standing start three years ago, it has sold 5.8bn policies to 460m customers. This has quickly translated into profit. Zhongan went from making a loss in 2013 to posting Rmb168m in net profit two years later. Total assets jumped more than 500 per cent between 2014 and 2015, to Rmb8bn.

Now backed by Chinese ecommerce company Alibaba, internet group Tencent and financial conglomerate Ping An, Zhongan is often cited as a candidate for an initial public offering.

Wayne Xu, chief operating officer, does not dispute the often light-hearted nature of some of its products — admitting that some are simply designed to “make people feel better”.

The flight-delay insurance product gives customers digital coupons on their smartphones that they can redeem while still in the airport. “It gives them a reason to walk around while they wait for their flight,” Mr Xu explains. He sees this as a radical approach in an industry that has long struggled to attract young people.

5.8bn

policies sold to 460m customers, has quickly translated into profit

But his big three backers see serious scope for valuable data gathering.

All three investors have already collected user data across vast swaths of China’s internet, through online merchants, messaging applications and bank accounts. Now, when Zhongan underwrites its retail credit insurance products, it can tap into the personal credit scoring databases of the three Chinese internet groups — giving it one of the broadest views of credit data of any company in the country.

To continue the push, Zhongan has prioritised recruiting staff with tech, rather than insurance, backgrounds. “None of us have been working at an insurance company before this,” notes Mr Xu, formerly a product manager at Google.

Henri Arslanian, an adjunct associate professor at the University of Hong Kong who teaches financial technology, says he regards Zhongan as “a technology company that happens to focus on insurance, rather than an insurance firm that is looking at digital as simply another distribution channel”.

Alibaba has acted as the channel through which the majority of Zhongan’s products have been sold, and the insurer’s flagship policy is return shipping insurance for goods sold on Taobao — Alibaba’s online shopping platform. Zhongan’s policies reimburse the cost of shipping when a shopper returns a product.

Last year, on the Chinese shopping holiday known as Singles Day, which falls on November 11, the group sold more than 100m return shipping policies in a single day.

Zhongan is finding it has competition in the market for offbeat insurance policies. TongJuBao already sells specialist policies to cover for the cost of divorce lawyers and for search teams to look for missing children. It also sells insurance that offers income protection for people who leave their jobs to move to a different city.

Launching offbeat policies does not always go smoothly. Zhongan discontinued its product for heavy drinking football fans for an undisclosed reason, and China’s insurance regulator has since issued warnings about companies selling “exotic” insurance.

Some analysts also question the long-term viability of Zhongan’s other policies. It has several hundred low-cost niche products, from drone insurance to policies that cover cracked mobile phone screens and cost only a few renminbi. On these, customer uptake is likely to be slow, the analysts claim.

“We hear that they have many teams developing many different kinds of products but the volume on individual products is still very low,” says Li Jian, a Hong Kong-based insurance analyst at Autonomous Research. “If you don’t have scale the costs will go up.”

A pure online insurance operation also has its limits. Motor insurance is one of the fastest growing categories of property and casualty insurance in China today. But the business requires insurers to have big claims teams that can visit accident sites.

Lacking those capabilities, Zhongan has instead focused almost entirely on niche motoring policies, covering tyres and other individual parts — missing out on covering bigger ticket items, says Stella Ng, a Hong Kong-based analyst at Moody’s.

“Given an operating history of three years, with limited track record of good underwriting profitability, we still believe it remains to be tested over time,” Ms Ng warns.

Additional reporting by Ma Nan

Zhongan is the clearest example of China’s advance into the “insurtech” world, but it is not the only one, writes Oliver Ralph in London. About 330m people in the country bought an insurance policy via the internet in the year to March 2016 according to figures from Ant Financial and CBNdata, cited by Asia Insurance Review. And that number is growing rapidly, according to the Insurance Association of China.

One of the reasons, says Cliff Sheng of Oliver Wyman, is that online insurance is sold in a different way, cutting out traditional sales agents.

“The new model is very different,” he says. “It is not product centric. It is reliant on customer demand and experience, and it is integrated in online ecosystems.” These ecosystems, he says, include e-commerce websites where customers buy insurance to cover the cost of returning items they do not want.

That, he says, introduces more people to the concept of insurance. “The products allow people who have never bought insurance to begin to buy it. The government wants the whole industry to be more inclusive.”

According to a recent report from independent analysts Ankur Nandwani, Christopher Lee and Matthew Wong, regulators have also played their part. “The China Insurance Regulatory Commission has been aggressive to both acknowledge and encourage innovation around new insurance products and online distribution on a national level,” they said.

They add that new regulations introduced last year make it easier for insurers to provide online services in regions where they do not have a physical presence, allowing new products to be launched more quickly.

What also sets China apart, they say, is the desire of large internet companies to get into insurance. Alibaba and Tencent, for example, are both big backers of Zhongan. That contrasts with the situation in the US where the likes of Google and Facebook have yet to make big strides into the insurance world.

Zurich boss launches plan to cut costs by $1.5bn

Posted on 17 November 2016 by

Zurich Insurance’s new chief executive has launched a plan to strip cost and risk out of the business, eight months after he was drafted in to turn it round.

Mario Greco — who joined the Swiss group from Italian rival Generali — told the Financial Times that while Zurich was still a “sound” company, it had lost control of some parts of its business.

Zurich’s net income more than halved last year, partly because of underwriting problems in its US general insurance division.

“What went wrong is that the company had created an excessive cost base,” Mr Greco said on Thursday. “There were a lot of IT projects and a lot of growth projects in a world that was not growing. Complexity grew a lot.”

Mr Greco had already announced plans to simplify Zurich’s complicated organisational structure. On Thursday, he added financial targets. He wants return on equity, which fell to 6 per cent last year, to increase to 12 per cent.

He also plans to cut $1.5bn, or 15 per cent, of the group’s costs between 2017 and 2019.

Analysts at Keefe Bruyette and Woods pointed out that Zurich’s cost base, at 35 per cent of its income, is much higher than the sector average of 25 per cent.

Much of the saving will come from streamlining operations — for example, by reducing the number of data centres the company runs from 70 to eight. Mr Greco did not rule out job losses among the group’s 55,000 employees, but suggested that there would be some “natural attrition” as staff turnover is about 12 per cent a year.

“We have no target for employee numbers,” he said.

Zurich pledged to maintain its dividend at SFr17 per share and, for the first time, gave a firm target on future dividends, saying it would pay out 75 per cent of net earnings to shareholders.

“Zurich is an income stock … and has to remain so,” Mr Greco told investors and analysts at a presentation in London.

This relatively high payout ratio would, he said, leave little spare cash for acquisitions although he added that Zurich remains interested in deals if the opportunity arises and would ask shareholders to finance large transactions if necessary.

However, Mr Greco stressed that the company would not chase growth. “A company like Zurich does not have to chase top line growth ever. We should have targets for profits and loss ratios, but not for growth.”

Zurich’s shares rose 2 per cent in morning trading on Thursday in response to the plan.

Andy Hughes, analyst at Macquarie, said: “They do seem like stretching targets to me. The challenge is whether you believe they can do it, especially in soft market conditions.”

Mr Greco says that his plan is achievable without the need for outside help. “This is an organic, internally driven programme which does not need external support from favourable markets, rates or inflation. It is a low risk plan.”

Zurich Insurance lays out new financial targets

Posted on 17 November 2016 by

Zurich Insurance has laid out new financial targets for the first time since Mario Greco became chief executive in March.

The company, which brought in Mr Greco after it suffered problems in its general insurance business last year, says it aims to make a return on equity of 12 per cent from 2017 onwards. It also wants to cut $1.5bn of costs, insurance correspondent Oliver Ralph reports.

Zurich also set out a new dividend policy, with a target payout ratio of 75 per cent of post tax profits.

The reach its new targets, Zurich has promised a more disciplined approach to underwriting in its commercial business and improvements to distribution in its retail business.

Mr Greco said:

We feel very confident about delivering on our ambitious financial targets and we are committed to drive the business with rigorous discipline. We have the right management team in place, we have set the right accountability and we are engaging our employees to play their full part in Zurich’s successful future. With this, we are well positioned to deliver sustainable improvement in earnings which will support an increase in the return of capital to shareholders over time.