Baloise to Shift Away From Index Funds to High-Dividend Shares

Baloise Holding AG (BALN), Switzerland’s third-biggest insurer, plans to focus on investing in high- dividend shares over the next five to 10 years on anticipation that interest rates will remain low.

The shift away from index funds to higher-yielding shares “will continue as long as the low interest-rate environment” exists, Chairman Andreas Burckhardt said in an interview in Belgrade on Oct. 2 during a visit to the company’s Serbian unit.

The Basel-based insurer is due to announce in March a revised goal for return-on-equity after concluding earlier this year that its 15 percent target may no longer be attainable, Burckhardt said. The company has “vastly” reduced exposure to government bonds issued by some of the most debt-ridden European Union states, he added.

Risk related to Greece, Portugal, Ireland, Italy and Spain is “not an issue any more” for Baloise, said Jan De Meulder, head of international operations.

“We sold most of it,” De Meulder said. “There is still some left, but it’s minimal.” The sale of Greek sovereign debt last year cost the company more than 70 million euros ($90 million), he added.

While the low interest-rate outlook is clear, inflation still remains an issue, Burckhardt said.

“We’ll probably have inflation, the question is when and how fast,” he said.

Growth Potential

Baloise continues to see growth potential in southeastern Europe, Burckhardt said, adding that the Serbian unit probably will break even in 2014, its sixth year of operation. The Croatian unit, another greenfield unit until the 2007 takeover of Osiguranje Zagreb, is already profitable and an “established player” in Croatia with about 5 percent of the market.

The Croatian unit “will surely within two years’ time earn the cost of capital,” Burckhardt said. “Croatia and Serbia are two markets that shall become more important” even though they account for less than one percent of Baloise’s volume, he said. The Serbian market is less developed and has greater potential due to lower penetration, he said.

The insurer whose half-year net profit beat estimates with 7.7 percent increase to 218.9 million Swiss francs ($233 million) on non-life earnings and investment income, following a worse-than-expected plunge in 2011, remains “committed to interesting dividend policy,” sustaining 4.5 francs per share, he said.

“Non-life is today the profit generator of the group,” accounting for more than three-quarters of net income, De Meulder said. “That’s of course linked to the very low interest rate environment that we are living in” as life is “a lot more interest-sensitive than non-life.”

To contact the reporter on this story: Misha Savic in Belgrade at msavic2@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net