Zurich Insurance sets goals on Investor Day and looks to the US after Trump’s victory

The insurer Zurich continues to grow. This applies to property and casualty insurance as well as life insurance. US partner Farmers achieved an increase in overall premiums, as the insurer announced when presenting business figures for the first nine months of the year.

Georg Marti, an analyst at Zürcher Kantonalbank (ZKB), characterized the announcements as “generally beneficial”. Analysts and investors are now eagerly awaiting November 21. Then the Zurich management wants to present new goals for the period 2025 to 2027 at an investor day.

A three-year plan carried forward by one year

Zurich is well on its way to exceeding all the goals in the current three-year plan, says Claudia Cordioli, CEO of the Zurich Group, in an interview. “We are presenting a new plan before the old one expires. The current goals are no longer ambitious for us, which is why we have brought the new plan forward for a year.

Zurich’s management sees attractive opportunities for growth and therefore wants to define new goals, says the Italian, born in 1971, who has been Zurich’s CFO since March this year and came from the next –Swiss Re insurance. This will be addressed and presented at the Investor Day.

For the years 2023 to 2025, the management of the insurance group had stated, among other things, the objective of return on equity to an operating profit of 20 percent. This was higher than what was achieved last year at 23.1 percent. In the current plan, Zurich had also announced growth in earnings per share of more than 8 percent as another goal. At the same time, at the end of October, the insurer only completed a buyback program with a volume of 1.1 billion francs that was launched in June this year.

Zurich shares rose slightly on Thursday. Since the beginning of the year, the stock has increased by around 19 percent, while the Swiss Market Index (SMI) has increased by just over 7 percent. The Stoxx Europe 600 Insurance index, measured in euros, has registered an increase of almost 16 percent since the beginning of the year. Over three years, Zurich’s shares are in positive territory at almost 28 percent, while the SMI shows a loss of just over 3 percent over this period.

Zurich shares have a weight of 6.1 percent in the SMI, making them the sixth largest stock in the Swiss standard stock index after Nestlé, Novartis, Roche, UBS and ABB.

Natural disasters supported prices

The fact that Zurich expects to exceed its targets can be explained by a variety of factors, says Cordioli. When the targets that are currently valid were defined for 2022, it was assumed that prices in the field of corporate insurance would decrease and therefore margins. But this did not happen at all. The increase in natural disasters has supported prices in the property industry. In addition, the leadership of Zurich did not expect such a large increase in inflation and interest rates when they set the goals at the time. “Interest rates have remained higher for much longer than expected at the time,” Cordioli said.

Now it will be exciting to see what effect the election of Donald Trump as US President will have on interest rates. On the one hand, companies are happy that there was clarity so quickly in the elections, says Cordioli. Zurich is following developments in the US with great interest – after all, on average 60 percent of the insurer’s profits come from the United States. She is confident that we will work well with the new government.

In the US, the insurance business is largely done at the state level, says Cordioli. In California, for example, there are completely different rules than in Texas – business in both states is very important to Zurich and Farmers. It is locally managed, so good relations with local authorities are essential. In late 2020, Zurich and Farmers acquired parts of the American insurer Met Life. Now Farmers plans to expand further along the US East Coast, says Cordioli.

Restructuring at Farmers is paying off

A few months ago, investors and analysts were concerned about the high combined ratio and the deteriorating capital position at Farmers Exchanges. The US partner has now recovered quickly and the restructuring has paid off. Farmers Exchanges reported a 4 percent increase in gross written prices to $21.5 billion for the first nine months of the year. The overall ratio for the first nine months was 93.5 percent, 15 percentage points lower than the previous year’s value. This means that the US participant spent $93.50 out of every $100 in premiums to pay for insurance damages and his own expenses – leaving $6.50 for himself.

Zurich is often compared to the leading European insurers, says Cordioli. That’s somewhat misleading, as Zurich’s balance sheet is structured differently – after all, on average, 60 percent of profits come from the US and almost half from Farmers. On the other hand, insurers like Allianz or Generali in Europe have more risks. Zurich is more exposed to the US than its European rivals.

When the business figures were presented, financial market participants were also eagerly awaiting Zurich’s information on the latest natural disasters: the expenditure for hurricane “Helene” was around $160 million, and for hurricane “Milton” it was less than $200 million. The damage was lower than many analysts expected, says Cordioli. This shows that Zurich is working carefully here.