Zurich Insurance’s Investors Grow Impatient with CEO Senn’s Strategy

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Martin Senn, Zurich Insurance Group AG’s chief executive officer, is considering a bid for RSA Insurance Group plc, one of the U.K.’s biggest insurers, after a cost-cutting program failed to revive returns for shareholders.

Investors including GAM Holding AG are cautious about the possible deal but are growing frustrated with Senn’s strategy, even after he awarded them record annual dividends of 17 Swiss francs ($17.30) a share since becoming CEO in 2010. While the payout, yielding 5.7 percent this year, is the highest in the Swiss Market Index, gains for the shares have lagged behind rivals as the former Credit Suisse banker has been unable to bring profit back to pre-financial crisis levels.

“Dividend stories have a danger to be rather boring, profit doesn’t grow much, they don’t have much new to say,” said Daniel Hauselmann, who helps manage 123.3 billion Swiss francs [$123.2 billion] at GAM Holding, including Zurich shares. “That creates a certain pressure. Just paying a high dividend is not ambitious enough for me, but the past has shown in the insurance sector that not all mergers deliver much value either.”

Zurich Insurance said last week it is considering an offer for RSA, Britain’s second-largest non-life insurer with a market value of 5.2 billion pounds [$7.2 billion]. Senn, 58, reiterated in May that he had $3 billion in cash to spend. RSA could fetch 5.7 billion pounds [$8.7 billion], according to Panmure Gordon analysts.

The Swiss firm, advised by Morgan Stanley, is seeking more than $4 billion of financing for the possible deal, two people familiar with the discussions said on July 31. It’s not clear whether an offer for RSA will be made, Senn said this week.

Pressure Increases

Financial results published Thursday have upped the pressure on Senn to revive earnings, as second-quarter profit unexpectedly dropped to $840 million.

Profit from general insurance slumped 43 percent and Zurich’s core operating ratio, a key measure of profitability, worsened to 100 percent from 95.6 percent after claims from corporate clients in North America surged. A figure above 100 percent means an insurer is making an underwriting loss.

“These results don’t position Zurich well for its potential bid,” Societe Generale analysts led by Nick Holmes said. “Zurich may be best advised to show it can get its own house in better order before it tries to sort out its neighbors.”