February 26, 2014 / 8:00 AM / 4 years ago

UPDATE 2-Swiss Life shares jump to 5-1/2 year high on dividend

* Swiss Life hikes dividend after profit beats forecasts

* Policies for US wealthy are tax compliant overall - CEO

* CEO says cannot rule out request from US tax authorities (Adds analysts, share price, detail, quotes)

By Alice Baghdjian and Paul Arnold

ZURICH, Feb 26 (Reuters) - Switzerland’s biggest dedicated life insurer, Swiss Life, raised its dividend more than expected after 2013 profits topped even the most optimistic forecast, sending its shares to a 5-1/2 year high.

Outgoing Chief Executive Bruno Pfister played down concerns that Swiss Life could get caught up in a U.S. crackdown on tax avoidance by American citizens, saying its policies for wealthy U.S. individuals were overall in line with the rules.

Swiss Life’s earnings were lifted by cost cutting and increased premium income, prompting the Zurich-based insurer to propose a dividend of 5.50 Swiss francs per share for 2013, compared to 4.50 francs in the previous year, representing a payout ratio of 23 percent.

The company said it was able to substantially strengthen its reserves - money that insurers build up against anticipated claims, making its balance sheet more resilient. It said it had implemented three quarters of the cost cuts it planned by 2015.

“The increased 5.50 Swiss franc dividend ... is a promising sign the balance sheet strengthening has progressed well,” said Stefan Schuermann, an analyst at Vontobel, who has a “buy” rating on the stock.

The higher profit came despite an 8.6 percent drop last year in gross written premiums at Swiss Life’s unit selling insurance policies to wealthy clients worldwide.

The business sells policies known as wrappers, or Private Placement Life Insurance (PPLI), into which the very wealthy place stocks, private equity holdings and other bankable assets, allowing them to lower their tax rate.

Critics say they can be used as a tax dodging tool, and insurers in Switzerland have been preparing for months for U.S. officials to investigate the products.

“All in all, we consider the bulk of the business to be tax compliant, so I am relatively relaxed, but I cannot rule out that there may be a few black sheep in there,” Pfister said.

Pfister, who will be replaced by Swiss Life’s investment chief Patrick Frost later this year, said the firm had neither approached, nor been approached by, U.S. tax authorities.

“In light of all the information that is now flowing from Swiss banks to the U.S. authorities, we cannot rule out that an enquiry from U.S. authorities will come at some point,” he said.


The insurer’s dividend yield of 2.2 percent remains below many of its peers, including Switzerland’s Zurich Insurance at 6.4 percent, and Helvetia at 3.7 percent.

Dominik Studer at J. Safra Sarasin said Swiss Life shares were attractively priced, and also rates the stock a “buy”.

“We see further upside in light of the progress towards the company’s 2015 targets, which will allow Swiss Life to gradually increase its payout ratio going forward,” Studer said.

Shares in Swiss Life jumped 5 percent on the results to 213 Swiss francs by 1050 GMT, their highest since August 2008. The stock was outperforming a European insurers index, which fell 0.2 percent.

The Zurich-based insurer posted full-year net profit of 784 million Swiss francs ($882.73 million), compared with a 712 million average of estimates in a Reuters poll.

The result was almost eight times higher than in 2012, when a writedown of Swiss Life’s German advisory arm hit earnings.

Gross written premiums in Switzerland rose 8.8 percent, helped by demand from small and medium enterprises, while its second-biggest market, France, had a 10 percent increase in premiums in 2013.

In January, the U.S. Justice Department received 106 requests from Swiss entities to participate in a U.S. settlement programme aimed at ending a long-running probe of tax-dodging by Americans using Swiss bank accounts. Not all the entities might be banks, it said.

Pfister said Swiss Life ceased to write new business for clients based in the U.S. in 2012, adding that the insurer had returned funds to almost all of its American clients who had invested in wrappers linked to bank accounts at Bank Frey, a Swiss private bank.

Frey is one of 14 Swiss firms under formal U.S. investigation for its dealings with U.S. clients and untaxed assets. It said late last year it would close because the probe’s costs eclipsed the bank’s financial strength.

Later on Wednesday, U.S. senators will grill U.S. law enforcers and Swiss bankers in a five-year-old dispute over Swiss bankers helping Americans dodge taxes. ($1 = 0.8882 Swiss francs) (Additional reporting by Katharina Bart editing by Jane Merriman and Tom Pfeiffer)

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