Zurich Insurance Group�s (ZURVY) shares have made a strong comeback since they suffered a blip a couple of months ago. Their strong showing can continue through 2013.
The stock was hammered in November when the company reported disappointing third-quarter numbers due to one-off items, largely a $550 million provision for �long tail� liability claims, or claims tied to long-term payouts in Germany that it had flagged a month earlier. At the time, we signaled that the weakness was temporary and represented a good buying opportunity.
Since then, the shares have climbed about 16%, closing Wednesday at 257.40 Swiss francs ($276.96). The company�s American depositary receipts have done even better. They traded Wednesday afternoon at $27.82, up about 18%.
Plenty of analysts now reckon the Zurich-listed shares could reach 300 Swiss francs in the next 12 months, suggesting upside of almost 20%. It is easy to see why: despite the recent jump, the shares still look cheap. They trade at just 9.5 times estimated 2013 earnings of 27.19 Swiss francs per share. That would represent a sharp rise from an estimated 21.59 Swiss francs in 2012.
On top of that, Zurich Insurance Group�s dividend yield is a whopping 6.7%, supported by a track record of sustainable earnings and a strong solvency ratio, calculated by dividing net assets by net premium written. The solvency ratio stands at a robust 178%.
Pierre Wauthier, chief financial officer of Zurich Insurance Group, says the company is well placed because it is less exposed to businesses that suffer when interest rates are low as well as the resilience of its fee-based and protection-based life insurance business. �These two businesses are about 89% of our new business,� says Wauthier on the sidelines of the World Economic Forum in Davos, Switzerland.
He also is excited that the Swiss insurer is growing strongly in emerging markets, especially in Latin America where it is reaping rewards from a joint venture with Banco Santander. But it isn�t growth at any price. �We want to remain disciplined to make sure it is profitable growth,� says Wauthier.
Zurich Insurance Group�s growth policy appears just right for investors.
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