Zurich Insurance Stock: Looking At The Latest News (OTCMKTS:ZURVY)

After our comment on Zurich Insurance’s (OTCQX:ZURVY) Q1 results, today we are looking at the company’s recent news.

From McDonald’s (MCD) to Dutch brewer AB InBev (BUD) to French carmaker Renault (OTC:RNSDF) and Societe Generale (OTCPK:SCGLF), several companies have fled the Russian market in response to the invasion of Ukraine and some have sold their businesses. Zurich Insurance joins the list.

The Swiss insurance company announced that it has agreed to divest its Russian business and its 11 local team members. The sale remains, of course, subject to regulatory approval and as can be expected there was no reaction of the Zurich Insurance stock. “Under the new owners, the company will operate independently and under a different brand, while Zurich will no longer conduct business in Russia” the company said. “The transaction will allow the new company to retain a team of professionals with accumulated skills in the insurance sector and to continue serving the Russian market.” Zurich Insurance held 0.3% of the Russian non-life insurance market. Looking at the P&L, in 2021, Zurich recorded gross premiums in the country of around $34 million, most of which related to international customers. Of these, we understood that only $3 million came from Russian domestic customers.

In the meantime, Zurich is negotiating the sale of a part of the life portfolio in Germany with Viridium, a company of the Cinven group, which would be in pole position for the purchase. According to what was reported by the Bloomberg agency, which cites anonymous sources close to the dossier, these would be policies for a value of about €20 billion.

At the beginning of the year, Zurich Insurance had announced the sale to GamaLife (Apax) of a part of the Italian life portfolio consisting mainly of traditional and some unit-linked policies, for a total of €8.4 billion in technical reserves at a price of €128 million. This type of operation has already been registered in the insurance sector before.

In fact, in 2018, Generali was the first to move to Germany with the maxi sale of Generali Leben to Viridium, the instrument created by the private equity fund Cinven and the reinsurer Hannover Re (OTCPK:HVRRF), which had allowed the Leone to collect €1.9 billion.

Then, in April last year, it was also the turn of Allianz (OTCPK:ALIZF), which in Belgium decided to dispose of a life portfolio passed to Monumentum Re. The pattern is always the same: the company gets rid of old life policies with guaranteed minimum returns, collects liquidity and obtains benefits in terms of solvency, and reduces capital requirements. On the other hand, there are operators specialized in the management of expiry policies who have identified a profitable business in these operations.

Conclusion

Here at the Lab, we positively see this news and we believe that Zurich is very well-positioned in this inflationary environment to deliver shareholders’ returns both in dividend and capital appreciation. The company has important excess capital and a lower risk profile than its peers. We value the Swiss entity with 475 Swiss francs per share based on a sustainable ROE across the cycle.