Zurich Insurance Group AG CFO George Quinn has poured cold water on any expectations that the company might be planning a big merger, telling analysts May 9: "We don't believe in this large-scale multimarket approach to M&A. It creates a huge distraction for the business."
He added: "It is pretty rare that 1+1 in this world creates something more than 2. [Large-scale M&A] is not our priority. Our priority is on the operational side and that is where it will continue to be."
Quinn faced questions about mergers and acquisitions from analysts on the conference call for Zurich's first-quarter trading update, after the CEO of rival insurer Allianz Group, Oliver Bäte, told the Financial Times that Allianz would be open to a "merger of equals." Potential insurance mega-mergers are a hot topic of discussion in the industry, in part thanks to Axa's pending acquisition of Bermuda-based XL Group Ltd.
Done deals
Zurich is not averse to M&A in general, Quinn noted, pointing to a number of deals over the past 18 months. These include the announcement in December 2017 that it would acquire Australia & New Zealand Banking Group Ltd.'s OnePath life insurance business.
However, the deals done had two characteristics, Quinn said: They were part of Zurich pursuing a particular goal, and they were financially attractive. "So compared to the alternative use of capital, which would typically be to return it to investors, these all represented a superior use [of capital] for our investors."
He added: "We don't exist to do M&A. We exist to serve our customers well and generate a good return for our investors by doing that. And that means the operational plans we put forward at both the investor day in 2016 and again at the investor day last year are the most important priorities for us."
Capital questions
Zurich's capital level also prompted M&A questions from analysts. Zurich reported a capital ratio based on its own Zurich Economic Capital Model, of 133% as of March 31, 2018, up 1 percentage point from the end of 2017 and above its target range of 100% to 120%. This suggests it has extra capital to put to work on projects such as M&A.
Quinn said the M&A done to date had not eaten into its capital ratio in part because work done to transfer old liabilities from Zurich's books had paid for some deals "in entirety." While acknowledging that the ratio was above the target range, Quinn said the capital position "should be a topic that gives investors confidence that the dividend is very secure indeed."
He added that the company's preference was to use capital for "organic activity" but that where it deviated from this, it would be to pursue acquisitions that "would help us not only get to targets but help us get there faster or help us exceed the targets."
Zurich's trading update, which did not include profit figures, showed a 5% year-over-year increase in first-quarter property and casualty gross written premium to $9.3 billion, and a 7% rise in life annual premium equivalent to $1.3 billion. Gross written premium at the company's policyholder-owned Farmers Exchanges business in the U.S. rose 4% to $5.1 billion.
