Company Update
Buy
Zurich Insurance: Mainly delivering across the board in 2023
22. February 2024
Analyst:
Report
Zurich reported its 2023 full year figures today. Insurance revenue was up to USD 56.10bn, in line with expectations. Group operating profit (BOP) went up by 21% to USD 7.4bn for the full year, beating estimates by 3.4%. The beat was mainly driven by a much better than expected result in the Life business and at Farmers, making up for the miss within Non-life. Life saw BOP of USD 2.06bn and Farmers a BOP of USD 2.30bn. The combined ratio of 94.5% within Non-life was above expectations and the same as in the previous year, which resulted in the weaker than expected BOP. Net income however disappointed with a growth rate of 10%, leading to net income of USD 4.35bn, over 13% below estimates. This is driven by one-offs. EPS went up to USD 29.73.
Within the Non-life business Property & Casualty premiums and policy fees were up by 9% on a like-for-like basis (LFL) versus 7% in USD terms to USD 44.40bn. As a result, revenue went up by 8% or 9% LFL to USD 42.29bn. BOP was up by 7% or 10% LFL to USD 3.89bn. Revenue was in line with expectations, while BOP was below, due to the higher than estimated combined ratio.
Life saw premiums going up by 24% or 26% LFL to USD 16.38bn and revenue being up to USD 11.00bn, a beat of estimates of above 4%. BOP was up by 39% or 55% LFL to USD 2.06bn, as all regions contributed to growth. Growth was also positively affected by USD 350m of one-offs in 2022.
Lastly Farmers saw premiums written of USD 27.35bn, up by 5% yoy. As the combined ratio improved by 5.4 points to 91.9% BOP surprised positively with a growth rate of 10%, resulting in USD 2.30bn.
The SST ratio was estimated to be down from 267% a year earlier to 233% as of January 1st, 2024.
The dividend will be raised from CHF 24.00 to CHF 26.00, which is pretty much in line with expectations. In addition, the firm plans to buyback shares worth CHF 1.1bn. The latter is ahead of expectations.
Furthermore, the company raised its 2023-25 cycle net income growth targets to a compound annual rate of 10% versus previous 8%. Overall, the CEO mentioned that they will not adjust their 2025 targets, but that they will potentially overachieve.
Valuation
Zurich Insurance currently trades at 12.2x P/E 24E, in line with its 5-year historical average of 12x and below the MSCI Switzerland Financials Index (16.2x). On a P/B 24E basis, the stock is trading at 2.5x, above its 5-year average of 1.8x and above the MSCI Switzerland Financials Index (1.7x).
Conclusion
Overall Zurich delivered good results, while only disappointing within Non-life, where the underwritings as well as the combined ratio disappointed. Still, the surprising buyback program, the outlook upgrade as well as the positive comments by the CEO on the potential to overachieve on 2025 targets should help to make up for the aforementioned misses.
We confirm our buy recommendation.
Management Outlook
The 2023-25 targets are as follows: The company aims for a BOPAT ROE of >20% and a Swiss Solvency Test (SST) ratio of ≥160%. EPS growth is expected to be 10% p.a. Cumulative cash remittances are to be USD >13.5bn.
Financials
in reporting currency*Bloomberg consensus estimates
Stock and Price Data
| CHF 65.4 | CH0011075394 | Financials | CHF 447.10 | No |
Performance
Performance in %
| Since inception* | YTD | Last 6 months |
|---|---|---|
| 9.5 | 1.7 | 10.3 |
*Inception date: 13.09.2022
VP Bank Sustainability Score
Very good
VP Bank Sustainability Score
5
ESG Score
3
ESG-Momentum
2
Business Practices
5
Business Activities
3
SDG/Impact ExposureResponsible for this content
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VP Bank Sustainability methodology (VPSS)
 | VP Bank Sustainability Score (VPSS): Our overall score expresses a comprehensive assessment of a company's sustainability. It is composed of the ESG rating, momentum, business practices and activities. The scale ranges from “insufficient”, "below average", “average”, “good”, "very good" to "excellent". |
 | ESG rating: The ESG rating reflects how sustainable a company is in terms of environmental, social and governance criteria. The indicators may vary depending on the industry. The scale ranges from -1 ("insufficient") to 5 ("excellent"). |
 | Momentum: The momentum indicator measures the extent to which the ESG rating of a company has changed. The scale ranges from 1 ("below average") to 5 ("excellent"). |
 | Business practices: The business practices of a company are analysed and checked whether it is in breach of international standards. Exemplary companies receive a high score, while misdemeanours lead to a low score depending on the severity of the breach. Serious violations lead to exclusion. The scale ranges from -1 ("questionable") to 5 ("exemplary"). |
 | Business activities: This value scores the business areas in which a company is active. Activities which we consider "critical" are excluded, while borderline and questionable areas receive a deduction. Activities that are not "critical" receive a positive assessment. The scale ranges from -1 ("insufficient") to 5 ("excellent"). |
 | SDG and Impact Score: This value compares a company's products and activities or dedicated impact solutions with the UN's 17 Sustainable Development Goals (SDGs) and measures the extent to which they contribute to or contradict the achievement of the goals. The scale ranges from 1 ("below average") to 5 ("excellent"). |
Source:
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