At a presentation to investors on Dec. 5, top executives at Zurich Insurance outlined an aggressive multi-prong strategy to steer the company through 2016. Key goals enumerated at the day-long meeting include improving Zurich's return on equity, maintaining its "strong capital position," and generating "high levels of free cash flow."
Zurich is seeking a return on equity of 12 percent to 14 percent in the three years through 2016. That's down from 16 percent. The recalibrated targets are being viewed positively, and Zurich CEO Martin Senn says the company may also sell certain businesses to shore up earnings.
"We are very strong in some areas, but we lack scale or profitability in others,'' Senn said in a statement. ''We will invest in priority markets, but manage other businesses for value. This will mean improving the profitability of certain businesses, while we will either turn around or exit those that are under-performing.''
Over the next three years, Zurich will distribute at least $9 billion in cash to the holding company. Meanwhile, the present underwriting focus and investment discipline will essentially remain unchanged.
Restoring Faith with Realistic Goals
Switzerland's largest insurer has encountered some notable challenges in the past year, such as chronically low global interest rates and the suicide of CFO Pierre Wauthier in August, which precipitated the resignation of Chairman Josef Ackermann. In order to regain investor confidence, Senn will must not only promote but also enable the company to deliver on more realistic targets.
Zurich had planned to reduce its general insurance combined ratio, or claims expenses as a proportion of premiums, by as much as 4 percentage points relative to competitors by the end this year but missed that target. Moreover, the quarterly earnings during the first half of 2013 fell short of projections.
Third-quarter profits did, however, exceed expectations—net income rose $1.1 billion from $672 million the year prior—and Senn acknowledges that improvement is needed in the retail sector to augment the company's already strong performance in the corporate and commercial sectors.
Cost-Cutting Measures
Enhancing the company's operating profits will necessitate cuts, some of which have already begun. The company has already eliminated 53 jobs across its general insurance operations, with more restructuring planned. in fact, Zurich expects to dole out about $600 million in restructuring costs over the next 12 months, with two-thirds affecting the global life unit and one-third general insurance.
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