Opinion: Why Is Zurich Seeking Shareholder Permission to Raise Money?

By Chris Hughes | March 27, 2017

Zurich Insurance Group AG wants more freedom from its shareholders to raise money quickly.

That’s odd. Switzerland’s largest insurer has no capital hole that needs filling. The move suggests newish CEO Mario Greco may be concerned about missing out on opportunistic M&A.

New shares that could be issued: 45 million.

The insurer will ask investors this week for permission to mint as many as 45 million new shares without having to seek their consent, up from the 10 million it can do so at present. After Italian newspaper Il Sole reported that Zurich was considering an 8 billion-euro ($8.6 billion) fundraising, the company denied on Monday that it planned to seek new capital.

Even so, the stock fell as much as 2.6 percent on Monday, more than twice as much as the wider Bloomberg European 500 Index.

Zurich’s own measure of its ability to pay policyholder claims over a year stood at 122 percent at the end of 2016, just above its target range of 100 to 200 percent.

But if that snapshot looks reassuring, organic capital generation is unlikely to strengthen rapidly in future. Greco aims to pay out 75 percent of earnings in dividends, so a big chunk is going to be paid straight out to shareholders.

What’s more, Zurich will want to be able to move quickly to shore up its balance sheet in the event of a shock.

As things stand, there’s no obvious problem. Greco’s main focus is restructuring Zurich to make it more efficient. Investors have warmed that story, pushing the shares up more than 40 percent over the last year.

But Greco can’t cut Zurich to greatness, and he will want to be ready to take advantage of opportunities that arise.

It’s hard to see the company revisiting its attempted bid for Britain’s RSA Insurance Group Plc, but smaller deals might make sense. While Intesa Sanpaolo SpA has decided against buying Assicurazioni Generali SpA — a deal that would have generated a host of disposals — Generali is in tidying-up mode, and may throw up some assets that would fit Zurich.

Greco’s counterpart at Aviva Plc said earlier this month the British insurer had too much capital. Allianz, meanwhile, is splashing out on share buybacks. With all that firepower potentially available for deals, it’s little wonder that Zurich doesn’t want to feel disadvantaged.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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