Monday, 21 July 2014

Analysis of Zurich Insurance

Zurich Insurance, a Swiss insurance company

Company: Zurich Insurance Group

ISIN CH0011075394 | WKN 579919      

Business: A Swiss insurance company. They have three core businesses: General Insurance (from individuals to large corporation will all their insurance needs), Global Life (protecting individuals for the future with life insurance, savings products etc.) and the third one is Farmers (insurances for farmers including re-insurance, additional part with insurance of motorhomes, travel trailers etc.)

Active: World wide active selling their products and services to customers in more that 170 countries.

P/E: 11.2

contrarian values of P/E, P/B, ROE as well as dividends for Zurich Insurance

The P/E of Zurich Insurance is great with 11.2 and the P/B is also ok with 1.4 which gives a very clear buy signal from Graham. The earnings to sales are at 6% which is better than Talanx (see analysis of Talanx) but much worse than Sampo (see analysis of Sampo).  The ROE is ok but not more with 12.4%. The book to debt ratio I do not like but follows normal insurance and bank trends by being down at 0.09.
In the last five years they have had a tough time to grow since the yearly growth has only been 0.5% which is pretty bad and this leaves us with a motivated P/E of 8 to 10 which means that Zurich Insurance is fairly valued by the market today.
They pay an excellent dividend of 6.3% which correspond to 70% of their earnings which is very high! However... this is the strategy they have and in the last five years they have handed out 70% of their earnings in dividend. If the earnings drop the so does the dividend but in the last five years they have each year handed out 18.5 +- 1 € in dividends.

Conclusion: Graham says yes to this company and even I could consider to step in due to the very nice dividend payment, the low P/E and the acceptable ROE and P/B. I would however have preferred if they would use part of the dividend to buy back shares instead but who knows maybe one day they will start to do so.

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Finansnovis said...

Comparing with Sampo might be irrelevant considering that they mainly act on the nordic market which has a lower combined ratio than the US, and probably mainland europe, too. Or am i wrong (does zurich insurance act elsewere)?

Fredrik von Oberhausen said...

Is it easier markets or better run companies?

If it is a better market then why do not Zurich, Ergo, Allianz, Talanx, CNP etc. enter the market and completely take it over?

In my opinion it is important to look at companies in the same business and especially to see how good things can be in that line of business no matter if it is based on market or management.