2023-11-11 06:51:56 ET
Summary
- Zurich Insurance Group has seen continued premium growth across its core business lines.
- The company has shown strong performance in Property & Casualty insurance and Life sectors.
- Despite potential risks from Hurricane Otis, Zurich Insurance Group has managed to maintain a declining combined ratio and is expected to see further upside.
Investment Thesis: I take a bullish view on Zurich Insurance Group based on continued premium growth across core business lines.
In a previous article back in August, I made the argument that Zurich Insurance Group ( OTCQX:ZURVY ) has the capacity to see further upside going forward on the basis of low combined and loss ratios, as well as rising reinsurance rates.
Return on equity for the company had also seen a strong increase at the time, driven in part by an improvement of 8% in Property & Casualty insurance revenue.
Since then, the stock has ascended slightly by just over 3% to a price of $47.68 at the time of writing:
The purpose of this article is to assess whether Zurich Insurance Group has the ability to see continued growth from here taking recent performance into consideration.
Performance
When looking at the most recent earnings results for Zurich Insurance Group, we can see that Property & Casualty saw a 9% growth in like-for-like gross written premiums for the nine months ended September 30 as compared to the same period last year. We also see that North America is the largest market by insurance revenue.
The Life sector also saw significant growth of 23% in like-for-like present value of new business premiums. With that being said, while EMEA remains by far the largest market - we saw a 38% drop in new business premiums on a like-for-like basis due to lower sales in the corporate business.
Overall, Zurich Insurance Group also has a very strong Swiss Solvency Test ratio of an estimated 266% as of September 30, 2023 and expects to supplement its existing dividend with an additional share buyback.
My Perspective
As regards my take on the above results and the implications for the growth trajectory of the stock going forward, it is not until we see full-year results that we will have a better idea of performance with respect to important metrics such as the combined ratio across the Property & Casualty sector.
In my previous article back in August, I had outlined that in spite of catastrophic losses - Zurich Insurance Group had shown resiliency in the sense that the combined ratio has consistently been lower than 100 over the past six years, which indicates that Zurich Insurance Group has consistently brought in more in revenues relative to claims and other expenses.
Additionally, we also see that the combined ratio has remained below that seen in 2021 and previously.
While the combined ratio for the second half of this year has yet to be determined, I am cautiously optimistic that Zurich Insurance Group can continue to keep the ratio in line with that seen in more recent periods.
Price to Book
Return on Equity
When looking at the price to book ratio for Zurich Insurance Group, we see that the same is trading near a five-year high - which indicates that the stock is trading at a premium. However, we also see that return on equity is at a five-year high. As such, I take the view that Zurich Insurance Group has the capacity to see further upside if we see continued premium growth.
Risks
In terms of the potential risks to Zurich Insurance Group at this time, it is unclear at this point the degree to which the recent Hurricane Otis will impact the reinsurance industry - and to what extent Zurich Insurance Group will incur losses from the same.
For instance, it is reported that the hurricane could cost the local insurance and global reinsurance industry as much as US $6.5 billion - depending on the exposure that Zurich Insurance Group has to the Mexican market - this could place upward pressure on the combined ratio in the second half of the year.
However, given that the company has managed to maintain a declining combined ratio overall in spite of catastrophic losses - meaning that losses incurred from insurance payouts still remain lower than that of premiums collected - I remain optimistic that Zurich Insurance Group can weather this risk effectively.
Conclusion
To conclude, Zurich Insurance Group has continued to see premium growth across its core businesses. I continue to take a bullish view on the stock.
For further details see:
Zurich Insurance Group: Continued Premium Growth Encouraging