strategy calling for earnings per share to grow at a 12 percent
CAGR between 2008 and 2012 has been dealt a major blow. The target,
warns Switzerland’s largest life insurer, will neither be met in
2008 nor in 2009.
The warning came in its half-year report to 30 June reflecting a
net profit of CHF1.637 billion ($1.49 billion) and earnings per
share of CHF49.71, up 158 percent and 170 percent, respectively,
compared with the first half of 2007. However, impressive results
came thanks to extraordinary gains totalling CHF1.485 billion from
Swiss Life’s sales of its Netherlands and Belgian insurance units
for €1.45 billion ($1.9 billion) and private bank Banca del
Gottardo for CHF1.875 billion.
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Excluding extraordinary gains, net profit from continuing
operations was CHF152 million, down 64.2 percent compared with the
first half of 2007. Earnings per share from continuing operations
fell 61.7 percent to CHF4.65.
Of total profit before tax, interest and minority interest of
CHF227 million insurance contributed CHF218 million, a fall of 64
percent. Swiss insurance business contributed CHF120 million (-65
percent), businesses in France CHF100 million (-49 percent) and
businesses in Germany CHF19 million (-67 percent). A CHF21 million
loss was incurred in cross-border activities.
On an annual premium equivalent (APE) basis premium income growth
in continuing operations also stalled in the first half of 2008
with the value of new business at CHF355 million down 15 percent
from CHF418 million in the first half of 2007. Of total APE
Switzerland contributed CHF152 million, France CHF127 million,
Germany CHF66 million and Luxembourg CHF10 million.
On a net-earned premium income basis the first half reflected a 1.9
percent increase to CHF8.557 billion. In 2007 Swiss Re reported
premium income growth of 10 percent.
Overall, results were disappointing given optimism expressed by
Swiss Life’s CEO Bruno Pfister’s when the insurer released its 2007
results on 27 March 2008.
In a statement, he said: “Following the operational progress and
the strategic adjustments made at the end of 2007, we are in an
excellent position to accelerate growth and further enhance
profitability.”
Blame for poor performance was laid on what the insurer termed
“distortions on the financial markets.” Specifically, net capital
gains of CHF516 million in the first half of 2007 reversed into a
net capital loss and impairments of CHF1.2 billion in the first
half of 2008.
In its latest half-year statement Swiss Life predicts a net profit
of between CHF1.8 billion and CHF1.9 billion in 2008, of which
between CHF300 million and CHF400 million will be from continuing
operations. Net profit from continuing operations in 2007 was
CHF726 million.
Swiss Life added that given the “persistently difficult market
environment” and its decision not to proceed with its share buyback
programme in 2009 it will not attain its original 2009 earnings per
share target of CHF31.4. Announced in May 2008 the share buyback
programme comprised a CHF1 billion tranche in 2008 and a CHF1.5
billion tranche in 2009. As at 12 August 2008 Swiss Life had bought
back 4.2 percent of its issued shares for CHF416 million.
Despite the first half 2008 setback, Pfister remains optimistic:
“We consistently advanced the implementation of our strategy in a
challenging market environment. Our product initiatives are
beginning to show results and we have strengthened our distribution
capabilities.”
He added that beyond 2009, Swiss Life “is certain” its business
model will enable it to achieve annual profit growth of 12 percent
and a 12 percent return on equity.
Swiss Life is placing much reliance on German financial advisory
company AWD Holdings to assist its growth in Germany and
Switzerland and to provide it access to Austria and Central and
Eastern Europe. A strategic alliance between the insurer and AWD
formed in late-2007 has been extended to full control of AWD at a
cost of CHF1.7 billion following a public tender offer and purchase
of AWD’s founder Carsten Maschmeyer’s stake.
In August 2008 Swiss Life added to its interests in the independent
financial advisory market with the purchase of a 26.75 percent
stake in German advisory firm MLP Group for CHF500 million.
The move does not appear to have met with resounding approval from
MLP’s founder and supervisory board head Manfred
Lautenschläger.
In a statement following announcement of the share purchase he
wrote: “A co-operation between Swiss Life and MLP which will go
further beyond the existing product co-operation would threaten the
independence and the business model of MLP.
“This is why I do not see a reason for a dialogue on intensifying
the co-operation with Swiss Life.”
