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Global economic growth to fuel Zurich expansion in 2018: CEO

Global economic growth, improved conditions in the financial markets and price hikes prompted by natural catastrophes in 2017 will help Zurich Insurance Group AG continue to expand profitably, CEO Mario Greco said Feb. 8.

The optimism about future growth in part underpinned the company's decision to propose an increase in its dividend to CHF18 a share from CHF17 a share, CFO George Quinn added.

"In 2017 we accelerated [our growth] in the second half compared to the first half, and we feel this acceleration will continue into 2018," Greco told journalists at an event to discuss Zurich's 2017 earnings. "This is the year, and 2019 will likely follow, where there is GDP growth across the world. The economies are strong and interested in developing themselves."

He added that financial markets were also in better shape than in previous years, and that insurance prices had increased because of 2017's natural catastrophes, particularly in the U.S.

"All this together tells us that the external market conditions are going to be conducive to continuing to grow the business," Greco said. "Internally, we are now ready to [reap] the benefits of what we have been doing over the past two years."

Greco has overseen a period of heavy restructuring at Zurich since he took over as CEO in March 2016, as he sought to improve results, cut costs and prepare the company for a digital future.

Zurich's full-year operating profit fell 15% to $3.80 billion, mainly because of its $700 million claims bill from hurricanes Harvey, Irma and Maria. With the claims bill and other one-offs excluded, operating profit increased 6% to $4.76 billion.

Net profit attributable to shareholders was down 6% to $3.00 billion, or $19.90 per share. Shares in the company were up just over 2% as of shortly before 1 p.m. local time, while the Swiss benchmark SMI index was down 0.86%.

Dividend boost

Quinn said the underlying 2017 performance had in part driven the decision to propose a dividend boost, but he said a more important consideration was future performance.

"We have made it very clear that when we set or raise the dividend to a new level, it is our intention to establish that new level as the floor. It is not only about 2017 for us, it is also about the confident outlook we have for this year," he said.

One benefit Zurich will receive in 2018, according to Quinn, is the U.S. tax reforms, which took effect at the beginning of the year. He noted that more than half of the group's operating profit comes from North America, mainly the U.S., and the cut in the federal corporation tax rate to 21% from 35% will mainly affect profit from Zurich's Farmers unit.

Quinn said: "We will achieve a significant benefit from the reduction in the tax rate and we would anticipate in 2018 a 3- to 4-point reduction in the overall group tax rate."

But he added that the tax reforms would also require "some reorganization" because of measures to tax crossborder transactions. German reinsurer Hannover Re has already said it will shift some U.S. life business currently written in Ireland to a U.S. taxpaying company in Bermuda to avoid being hit by the measures.

Quinn declined to give further details on what reorganization would be required at Zurich, but he said: "The crossborder element is a challenge for global insurance groups. It is clearly problematic for the business model we run. I don't think it helps our clients, I don't think it helps international trade. But having said that, there will be a substantial benefit overall from the tax reform."

Insurance transformation

Greco also said the insurance industry was transforming to become one that serves customers directly. He said: "The industry is going from being a wholesale industry where we were manufacturing things for distribution, to being a business to consumer industry where we provide services directly to consumers. We are acquiring, developing, training skills to be capable of dealing with the customers."

Zurich spent $2.7 billion on acquisitions in 2017, many of which, Greco said, were "non-traditional assets" aimed at allowing Zurich to serve customers better. Examples include the acquisition of a majority stake in Fitsense, a company that uses data from mobile applications and online devices to provide customized insurance products.

Greco said the company would keep looking for such acquisitions, adding: "We don't know what we will find, but we are progressively expanding our capacity to serve millions of customers in a very innovative way, and we want to keep our [leading position] in the industry for doing that."