(Bloomberg) – Zurich Insurance Group AG raised its target for cost cuts and dropped plans to eliminate jobs as Chief Executive Officer Mario Greco overhauls Switzerland's largest insurer. The shares rose.
The new plan to cut costs by $1.5 billion from 2015 through 2019 replaces a previous goal to save at least $1 billion by the end of 2018. Zurich Insurance will also target a payout ratio of 75 percent of net income after tax, the firm said in a statement on Thursday. A minimum dividend of 17 Swiss francs ($17) a share will be maintained.
"The commitment on the dividend/payout ratio is positive as there has been a recurring question on Zurich's ability to deliver on its higher-than-average payout ratio," Olivier Pauchaut, an analyst at Bryan Garnier & Co. in Paris, said in a note to clients.
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, 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 an interview with Bloomberg Television. The "business has become very, very complicated over the last years and I'm trying to slim it down and make it simple again."
Jobs plan
Greco has scrapped plans for job cuts, he said on a call with reporters. Zurich had intended to shed or relocate 8,000 jobs to trim costs before he joined the firm.
The shares rose as much as 2.8 percent and were trading at 268.3 Swiss francs at 3:01 p.m. in Zurich trading. The insurer had risen 1.6 percent this year before the start of trading on Thursday, compared with an 11 percent decline in the Bloomberg Europe 500 Insurance Index.
"The insurance industry has a cost issue," Greco said in the Bloomberg Television interview. "We decided to attack it."
The announcement lacks "a clear new strategic direction," Thomas Seidl, an analyst at Sanford C. Bernstein, wrote in a note to investors.
The cuts should lift operating return on equity by as much as three percentage points through 2019, Seidl said, but the measures and charges related to them will leave "very marginal capital flexibility for developing the group."
Tech review
The insurer expects to take restructuring charges of $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 percent next year.
Greco wants underwriting performance to improve in the commercial business and to improve the firm's digital offerings. He will also seek new retail partnerships.
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