Zurich can push commercial top line, retail margin & Farmers rescue
Zurich Insurance is plotting top-line gains in commercial P&C, new retail margin and a move back to technical profits at US unit Farmers on its way to meeting 2025 targets.
“We are on track to deliver on our 8% EPS growth target, underpinned by P&C top-line growth, improved margins in retail, growth in preferred lines in life, Farmers Exchanges turn-around and expense discipline,” management said in materials for an investor day gathering held in London.
P&C Commercial earnings will grow chiefly from top-line growth with a hint of added margin in the mix, management indicated.
Management expects commercial growth focused in the middle market and selected lines including accident & health with rate increases and indexation fuelling the gain. Margin may rise on a roughly 0.5 point expected decline in the other insurance expense ratio.
“We are consolidating our market leadership in commercial insurance, pursuing growth in middle market and selected lines of business, while managing volatility,” management said.
Retail is considered a “significant” driver of earnings growth over the period, built considerably more on margin gain than top-line growth.
Troubled US unit Farmers should be on track to regain technical profitability by 2024 after likely ending 2023 with a combined ratio neighbourhood 106-107%.
Zurich expects a “favourable rate environment combined with targeted underwriting and claims actions” to take the first 3 to 4 points off the combined ratio for the unit in 2024. Cost savings and revised commission structure may remove another 2-3 points.
A reduction in cat exposure and pricing should remove in excess of 2 points from the 12% cat loss ratio now expected for Farmers in 2023. And should 2024 bring a more normalized cat event slate, Zurich might take the final 2 point ratio improvement to slip below the 100% marker, management suggested.
In addition to the 8% EPS compound growth target, the group is additionally working towards a 20%-plus business operating profit after tax return on equity (BOPATROE), its own preferred financial metric, Zurich reminded of targets set one year prior.
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