Swiss Life Targets Up to 50% Profit in Dividends by 2018

  • Insurer plans added cost cuts of 100 million francs by 2018
  • Focus is on efficient capital management, CEO Frost Says

Swiss Life Holding AG plans to pay a dividend of at least 8 Swiss francs for 2015 and wants to distribute as much as 50 percent of profit in dividends after years of payouts that trailed its peers. The shares rose to the highest in eight months.

The company will also cut costs by a further 100 million francs ($98.4 million) by 2018, Switzerland’s biggest life insurer said in a statement Wednesday. It aims to pay 30 percent to 50 percent of net income as dividends by that year. The proposed payout for the 2015 financial year is 23 percent higher than a year earlier.

“Going forward, we are going to place more emphasis on being in a position to remit cash to Swiss Life Holding and on efficient capital management in everything we do,” Chief Executive Officer Patrick Frost, who leads his first investor day Wednesday, said in the statement.

The company’s stock value relative to assets lags behind other Swiss insurers that pay higher dividends. Swiss Life’s payout ratio was close to the bottom of the 20 percent to 40 percent it aimed for over the past years as the company accrued capital buffers. It has also been cutting costs to boost profit as low interest rates keep returns from investments low across the industry.

“We wouldn’t announce a target range of 30 percent to 50 percent if we thought we’d remain at the lower end,” Frost said about the dividend plans on a call with journalists, declining to be more specific.

Swiss Life rose as much as 2.8 percent to 250.20 francs in Zurich trading, the highest since March 24. The stock was priced at 249 francs at 10:40 a.m.

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“The dividend of 8 francs is very good, more than expected,” said Peter Casanova, a Zurich-based analyst at Kepler Cheuvreux. “It’s clear that a return on equity of 8 percent to 10 percent constitutes an implicit target increase in the current environment. I think it’s all going in the right direction.”

Swiss life wants to increase its income from fees and commissions relative to the result from savings as it puts more focus on asset management. The asset-management unit is the only one with a key objective of fee income growth, while the regional divisions in France, Switzerland and Germany are focused efficiency gains and cost reduction, slides published Wednesday show.

“Swiss Life will increase the resilience of its business model by continuing the expansion of its fee business, which is comparatively capital-light,” the company said in the statement.

Swiss Life published the result of its Swiss solvency test, a measure of financial strength for insurers for the first time today. The ratio, calculated annually, stood at 140 percent to 160 percent at the beginning of 2015. The ratio was at the lower end of that range in November, Frost said on the call.

Nomura analysts led by Avinash Singh said before today’s report that Swiss Life should target a ratio of about 160 percent.

“Too much is still in flux around the calculation of SST and that is why we haven’t defined a target range yet,” Frost said. He doesn’t expect to give a range when the company releases full-year results either.

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