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Zurich posts record profit in first year of its 2023/25 financial cycle

 

Zurich posts record profit in first year of its 2023/25 financial cycle
28-02-24 / Kwanele Sibanda

Zurich posts record profit in first year of its 2023/25 financial cycle

Zurich - In the first year of its 2023-2025 financial cycle, Zurich Insurance Group (Zurich) has announced that it has posted its highest ever business operating profit (BOP) of US$7.4bn, strongly supported by an excellent performance by the Commercial Insurance business, a record performance in its Life business, and growth at Farmers, adding that tis result puts it in an excellent position for further growth and allows the Group to return more than US$5bn to its shareholders.

The Group said its strong set of results was driven by all of its businesses, with Life contributing a record US$2.1bn BOP, and P&C achieving double digit premium growth, well above rate increases of 6%. Commercial Insurance showed continued strong returns with a BOP contribution of US$3.6bn and a combined ratio of 91.4%, making great strides in improving its profitability, by focusing on underwriting discipline, ensuring a balanced portfolio, and simplifying customer and broker interactions through enhanced connectivity and data analytics capabilities.

It explained that the excellent results of the Life business reflect the ongoing successful execution of the Group’s Life strategy that focuses on protection and capital light savings business. Top-line growth was strong in all parts of the business, contributing to profit growth. Long-term insurance saw an increase in new business premiums, which will drive profits over time, and short-term insurance continued to grow strongly while maintaining stable underwriting margins. Fee business saw a strong improvement compared with the prior year, which was affected by adverse market performance.

Farmers in the U.S. also achieved strong growth, with a 10% increase in BOP and a Farmers Management Services margin of 7.0%, it said, adding that Gross written premiums for the Farmers Exchanges grew 5% on an underlying basis, and the combined ratio for the fourth quarter was better than expected, falling to 89.8%. Farmers Re also benefited from the improved underwriting at the Exchanges, contributing US$117m to the Group BOP.

This performance reflects the successful management actions in 2023, said the Group, further stating that its Retail business had continued to improve as the 2023 accident year combined ratio, excluding catastrophes, improved by 0.5 percentage points. In Retail, Zurich’s customer retention rate has remained stable over the past years, improving customer loyalty despite rate increases. Further, Zurich said it has improved its brand consideration ranking in eight markets since 2019.

"We delivered record returns in 2023, well ahead of all targets for 2023-2025, with particularly strong growth in P&C and Life and highly effective management actions at the Farmers Exchanges. I expect this positive momentum to continue and to achieve EPS growth above 10% over the cycle," said Mario Greco, Zurich Insurance Group Chief Executive Officer.

Enhancing the customer experience through investments in people and digitalization

Over the last three years, Zurich has invested US$1.8bn on technology, mostly  focused on digitalizing the business, improving efficiency and customer experience. For instance, 89% of Zurich’s retail quotes are now digitalized. Zurich is also leveraging artificial intelligence (AI) in more than 160 use cases providing advanced data insights to help underwriters, risk engineers and claims adjusters take better-informed decisions. Zurich strengthened its workforce with digital capabilities through an extensive upskilling program and the recruitment of over 1,000 digital technology specialists with critical skills, in areas like data analytics, AI, cyber security and cloud computing.

Natural catastrophes

Zurich’s diligent management of its exposure to extreme weather events helped to reduce earnings volatility and make the quality of its financial performance more predictable and solid. The actions are paying off, with natural catastrophe losses within the guided range for the full-year 2023, despite severe flooding and hailstorms in Europe during the third quarter.

Industry-leading shareholder return

Generating industry-leading shareholder returns is one of Zurich’s key ambitions, which is evidenced by its attractive dividend policy. Since 2016, Zurich has generated a shareholder return of 16% per annum. This compares favorably with the 9% annual shareholder return delivered by leading peers during the same period.8 Due to its record results and strong capital position, Zurich proposes an 8% dividend increase to CHF 26, a 19% increase in US$9 Zurich plans to supplement the ordinary dividend with an additional share buyback of up to CHF 1.1bn.

Outlook

Zurich now expects compound annual growth in 2023-2025 earnings per share (EPS) to exceed 10%. This compares with the target of 8%, which was established at the 2022 Investor Day. The investor and media presentation provides more detailed guidance for the 2024 earnings outlook. It includes mid-single digit growth in insurance revenue for P&C, with the Life BOP expected to be at least in line with the record high level of 2023.

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