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Zurich Insurance - Update
The upside potential for insurance companies is fairly limited as on the one hand (mainly in DM), most individuals and companies have applied for one or the other insurance cover, i.e. we consider markets as highly saturated. On the other hand, in EM, insurance products and services have still a low penetration rate as available funds are used for basic day-to-day benefits such as food, rent, gasoline, etc. Nevertheless, insurance companies have shown sound operational performances in the past years.
Zurich Insurance Company has one of the industry’s best business book and its solvency ratio is among the highest across the industry. In order to improve the cost basis, the company performs tasks such as a) running a cost efficiency program, and b) exploiting the low-interest rate opportunity. While the benefits of this is not immediately visible, it will help to sustain the medium to longer term market opportunity of the company.
The company conducts a highly sustainable dividend policy, the dividend of CHF 17.- per share is attractive and sustainable for the foreseeable future. ZURN is an attractive stock pick in the European financial sector which should continue to benefit from the European QE. We estimate the upside potential of the stock price in excess of 20 %.
Knowledge is power.
