Zurich Financial Plans to Cut Costs by $500 Million Over Next Three Years

Zurich Financial Services AG, Switzerland’s largest insurer, plans to cut costs by $500 million over the next three years with more than two-thirds of the savings coming from its non-life business.

Zurich doesn’t expect “mass layoffs” as part of the cost cuts, Chief Executive Officer Martin Senn said on a conference call from Zurich today. He didn’t give further details.

General insurance head Mario Greco is seeking to boost earnings at the Zurich-based company’s biggest business after operating profit declined 22 percent to $1.96 billion in the first nine months of this year. Greco, appointed seven months ago amid price wars in the U.K., Italy and Germany, is explaining his strategy to investors in Zurich today.

Zurich Financial wants to improve its combined ratio, a key measure of profitability in general insurance that shows spending on claims and costs as a percentage of premiums, by 3 to 4 percentage points. General insurance contributed 62 percent to the insurer’s profit last year.

“The 3 to 4 percent combined ratio improvement against peers by 2012 is a challenge,” Stefan Schuermann, a Zurich- based analyst with Vontobel Holding AG, said in a note to investors. The $350 million of targeted costs cuts at the general insurance unit will be a “good contribution,” he said.

Zurich Financial rose 1.6 percent to 234.6 Swiss francs as of 10:28 p.m. local time, valuing the company at 34.3 billion francs ($34.3 billion). The stock has gained 3.6 percent this year.

Generating Cash

Martin Senn, who took over from James Schiro in January, has reshuffled his executive team. Patrick Manley takes over as chief executive officer of the European general insurance business in January, replacing Annette Court, who left by “mutual agreement” earlier this year as the insurer announced its strategic review.

“Zurich is well positioned to outperform in a challenging environment,” the company said today in an e-mailed statement. “Our ability to generate cash is strong, supporting our policy to pay a sustainable and attractive dividend.”

The company reiterated its return-on-equity target of 16 percent. Zurich Financial said it will also accelerate the release of $1.5 billion of capital from non-core businesses by 2015.

The insurer wants to increase the contribution of new business value from Asia, the Middle East and Latin America to 30 percent of the life insurance total by 2013 from the current 15 percent to 20 percent.

Zurich expects “no material effect” from the European debt crisis. The insurer held about $12.4 billion of government debt from Spain, Italy, Ireland, Portugal and Belgium at the end of September, according to a presentation on the website.

To contact the reporters on this story: Carolyn Bandel in Zurich at cbandel@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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