Zurich Insurance: Low Combined Ratio, Strong Like-For-Like Growth

Investment Thesis

I take the view that a strong like-for-like premium growth and a low combined ratio should allow Zurich Insurance Group to see longer-term upside.

In a previous article back in October, I made the argument that Zurich Insurance Group (OTCQX: ZURVY) could see upside going forward as a result of growth across the Property & Casualty segment, as well as strong long-term return on equity growth.

Since my last article, the stock is up by over 15%:

The purpose of this article is to investigate whether Zurich Insurance Group can sustain upside from here.

Performance

When looking at growth in gross written premiums for Property & Casualty for the nine months ended September 2022 as compared to that of the previous year – we can see that on a like-for-like basis (adjusted for currency fluctuations as well as acquisitions and disposals) – GWP was up by 13% in the most recent period compared to 11% for the previous year.

September 2021 Property & Casualty Results

Moreover, we can see that growth for Europe, Middle East and Africa as well as North America both showed double-digit percentage growth on a like-for-like basis, while growth across the Asia Pacific region showed a strong jump in growth on this base.

September 2022 Property & Casualty Results

While the percentage change in USD is lower than that of last year on an overall basis – I take the view that with strength in the US dollar having consolidated against major currencies such as the EURO to a significant degree – we could see growth in USD terms rebound in the coming year for as long as like-for-like growth remains strong.

My previous article made reference to the risk that losses could be set to increase as a result of the impact of Hurricane Ian – with the P&C combined ratio potentially rising as a result.

With Zurich Insurance Group’s annual report for 2022 yet to be released – it remains to be seen whether Hurricane Ian did in fact have an impact on the company’s combined ratio (or the ratio of losses and expenses relative to premiums collected – the lower the ratio, the better).

However, the fact that gross written premiums have continued to see strong growth in the past year is quite encouraging.

Looking Forward

Going forward, I take the view that investors will pay particular attention to the combined ratio across Property & Casualty – specifically whether the impact of higher costs as a result of Hurricane Ian will materially increase the combined ratio.

However, the fact that premiums have continued to see growth is encouraging, and I take the view that even if the ratio were to see an increase – the fact that Zurich Insurance Group recently saw a record low combined ratio of 91.9% across its half- year results indicate that the company is in a good position to absorb the impact of catastrophic losses – particularly in light of the strong premium growth we have been seeing.

That said, investors will also be considering whether the ratio might also stand to increase due to the strong winter weather that hit the United States in December – with costs for the industry as a whole set to be in the multi-billion dollar range. While there are fears that this could rival losses seen in the Texas Freeze of 2021 – it is also noted that power outages were not as prolonged as in the former case. However, the costs are still estimated to be substantial.

From this point of view, the stock might see some consolidation if investors become apprehensive about the potential impact of such an event on the combined ratio.

However, I take the view that Zurich Insurance Group is in a good position to withstand such losses and should continue to see strong premium growth.

Conclusion

To conclude, Zurich Insurance Group has seen strong premium growth over the past few months. I take the view that given the record low combined ratio seen in the company’s half-year results along with strong like-for-like premium growth – Zurich Insurance Group is in a good position to continue seeing upside from here.

Editor’s Note: This article discusses one or more securities that do not trade on a major US exchange. Please be aware of the risks associated with these stocks.