Switzerland’s Baloise unveils new strategy as nat cats hit non-life profit

Swiss insurer Baloise has set new financial targets amid a “refocusing strategy” unveiled today as it seeks to offset pressure from activist investors.

Promising to build on “existing strengths and boost profitability”, CEO Michael Müller told investors that Baloise will aim for a return on equity of 12-15% and will increase the cash payout rate to at least 80% as part of an “attractive shareholder policy”, which will be backed by a share buyback programme to be launched next year.

Baloise will need to increase efficiency and cut costs, with the loss of 250 jobs, to achieve these targets, it said, as it also seeks targeted growth in its key markets of Switzerland, Belgium, Germany and Luxembourg. But it added that it was prepared to “acquire portfolios, review and restructure portfolios or even dispose of them if they do not satisfy this new target”.

“Following careful analysis of our business activities, we have identified substantial potential for raising efficiency along with related cost savings and opportunities for growth in all our business units,” Müller said. “To unlock as much of this potential as possible, we are launching our refocusing strategy, in which the emphasis is on the performance of our core business and its ability to generate value.”

Ahead of the investor day event, Swedish activist investor Cevian Capital said it had tripled its stake in Baloise to 9.4%, which it claims makes it the largest shareholder in the group. Cevian told the Financial Times that it wanted to see a strategic overhaul at Baloise, and in line with its interests in other insurers, it is likely to seek an increase in shareholder returns. Cevian told the newspaper that it wants Baloise to focus on its core markets, with half of its revenue generated by its domestic market.

Baloise said: “In Switzerland, Belgium, Germany and Luxembourg, Baloise wants to be among the leading insurance companies in its attractive target segments. To this end, we have to increase our cost discipline and achieve sustained profitable growth in the target segments, in doing so growing at a faster rate than the relevant markets.”

The group also presented its first-half results, which revealed a 7% increase in profit to CHF220m despite higher nat cat claims. Claims from storms in Switzerland in June cost the insurer CHF80m and raised Baloise’s combined ratio from 87.3% to 90.4% on the back of a 22% drop in non-life EBIT profit to CHF123m.

Overall business volumes were down 0.9% to CHF5.29bn in the first half, or 0.3% adjusted for currency effects, although non-life premium volumes recorded growth of 3% to CHF2.72bn.

Baloise highlighted growth in market share across all its operations in Europe.