Zurich can grow its way to still-higher margins; ups target 6 pps to 2025

Zurich Insurance Group will leverage top line growth, rising productivity and an improved portfolio, plus a boost from a shift in accounting standards, to push its preferred margin target up by half for its next three-year strategy horizon.

New targets look “very ambitious” CEO Mario Greco (Pictured) said at the kick-off of his company’s 2022 Investor Day festivities. “We think that by 2025 we will still be the most profitable company in the insurance world.”

Zurich will increase the return on equity it measures from its after-tax business operating profit to regions above 20%, well above the over 14% target it had set for the 2020-2022 period, a target it says remains on track to meet or beat.

Some 3.0 percentage points (pps) of that gain will come from growth, 1.0 pps from productivity gains and 1.5 pps from portfolio quality, Greco said.

Expect compound organic growth in earnings per share at 8% per year, versus 5% CAGR over the prior horizon, and cumulative cash remittances in excess of $13.5 billion over the period, two billion above the prior period. Swiss-measure solvency will, as ever, hold above 160%.

“It’s not maximising the profits, but reducing the volatility and then taking the profits as high as we can,” Greco said of the enduring philosophy.

P&C, especially commercial, will be the growth driver, well ahead of life. Mid-market remains the missing element in commercial P&C. The segment should be able to retain its overall margins over the coming three-year horizon.

In commercial P&C, Zurich has accomplished its plan of diversifying out of excessive long-tail commercial exposures. On the property side, some work remains to be done in cutting peak perils. US windstorm is down 5% from Q1 2021 and will be down 10% by end-2023. The California earthquake came out of the portfolio faster than planned and was already down 12% from Q1 2021 by mid-year 2022.

“Today, we are pretty happy with the portfolios,” Greco said. “However, there is still an area of development for us in the next years: we want to grow mid-market.”

“Commercial is in very good shape, and is prepared,” Greco said. “Mid-market will drive growth.”

In retail, Farmers will pick up its pace of growth after repositioning its sales organisation. The unit is “super important” for the group and its growth plans and is now equipped with “a variety of distribution channels” following the 2020 acquisition of a MetLife unit.

“We expect today a much higher rate of growth,” Greco said of the Farmers unit. “We are confident that the next three year will be good for them.”

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