February 13, 2014 / 6:36 AM / 4 years ago

UPDATE 2-Zurich's profits hit by business overhaul costs

* Zurich books $318 million in restructuring costs in Q4

* Insurer expects a further $300 million in costs in H1 2014

* Group proposes dividend of 17 Sfr, unchanged from 2012

* Dividend yield key attraction, further growth limited - analyst (Adds detail on charges, CFO, analyst)

By Alice Baghdjian

ZURICH, Feb 13 (Reuters) - Zurich Insurance missed profit expectations in the fourth quarter due to restructuring charges, and said the total cost of an overhaul of its business would be about $600 million - the upper end of its forecast range.

The Swiss company is revamping its strategy by investing in high-margin units and selling underperforming lines.

It took a hit of $318 million in the final quarter of 2013 due to costs of restructuring, including a goodwill writedown at its underperforming Russian retail arm and its exit from a business in Hong Kong.

The total costs of Zurich’s strategic overhaul will reach the upper end of the $400 million to $600 million range set out at the insurer’s investor day in December, acting Chief Financial Officer Vibhu Sharma said on Thursday.

“We’ve taken about $300 million of the $600 million in Q4 and expect the remainder into 2014,” he said. That remainder would be booked in the first half of the year, the firm said.

Chief Executive Martin Senn said the firm was exploring options for its retail operations in Russia, which had not met the company’s standards. He did not elaborate.

Net profit at the Swiss insurer rose 9 percent to $1.07 billion in the fourth quarter, thanks to fewer large claims compared with the same period of 2012 when damage claims related to Superstorm Sandy in the United States amounted to about $700 million.

However, the profit figure was below the average forecast of $1.28 billion in a Reuters poll of analysts.

Shares in Zurich were 0.3 percent higher at 269.2 Swiss francs by 1135 GMT, lagging a 0.6 percent advance in the European insurance sector index.

Zurich, whose 6.3 percent dividend yield is already the highest among the companies in Switzerland’s large cap index, said it would pay a dividend of 17 Swiss francs per share for 2013, unchanged from the previous year.

Its dividend yield also outstrips German rival Allianz , at 3.5 percent, and Paris-listed Axa, which offers 3.7 percent.

“The dividend yield in our view is the key attraction of the shares,” said Michael van Wegen, an analyst at Bank of America Merrill Lynch, which has a neutral rating on the stock.

“But we only see limited room for the company to grow dividend for the next two years, despite a solid capital position,” he said.


CEO Senn said the company was in a good position to deliver on its targets having replenished its top ranks after losing several executives last year.

The company has poached Swiss Re’s George Quinn for the position of finance chief, after Zurich’s chief financial officer Pierre Wauthier committed suicide in August.

Low interest rates, slashed close to zero by central banks in Europe and the United States to kick-start sluggish economies, have weighed on the investment income of insurers.

Sharma said he expected headwinds in Europe to continue this year, particularly in Spain and Portugal.

Net investment income declined 3 percent in the three months to December, but this was a slower rate than previous quarters in 2013, he said.

“We expect this trend (of a slowing rate of decline) to continue for 2014,” he said, but added new money yields would continue to fall short of the overall running yield. “Thus some pressure on net investment income will persist.”

Zurich’s combined ratio for the fourth quarter, a measure of underwriting profitability, was 96 percent, an 8.1 point improvement from the same period in 2012. Sharma said investors could expect more improvement in combined ratio this year. (Editing by Pravin Char)

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