Zurich Prefers Using $3B in Excess Capital on Purchases, Not Shareholder Payouts

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Zurich Insurance Group AG would rather invest the company’s $3 billion in excess capital on acquisitions than return the cash directly to shareholders, Chief Financial Officer George Quinn said in an interview on Thursday.

“Obviously we would like to invest in the future of the firm,” Quinn said. “That would influence our ability to grow, generate higher earnings and those would eventually lead to higher dividends. It’s always the preference to keep the money in the business and shareholders would have that preference too.”

Zurich’s September decision to drop a bid for U.K. competitor RSA Insurance Group Plc left the company with the surplus cash, prompting speculation on how the company will use it. The insurer expects to provide more details in February, it said in an earnings report on Thursday.

“We always continue to look at the opportunities that are out there,” Quinn said, declining to comment on whether the company has specific acquisition targets. Volumes at general insurance, the company’s largest unit will probably decline slightly next year, making organic growth less likely, he said.

The company will “invest in the markets that we currently sit in,” rather than trying to enter new emerging markets, where it can take a long time to generate returns, Quinn said. Zurich is well-positioned in Latin America and in some Asia-Pacific markets, he added.

“We prefer to invest in our distinctive positions,” rather than “sprinkling our capital around the planet,” he said.

Zurich has paid out 17 Swiss francs ($17.05) a share for every year since 2010. Subject to board and shareholder approval, that’s unlikely to change “unless there is a major natural catastrophe that causes industry-wide issues or unanticipated, very significant financial-market gyration,” Quinn said.

Third-quarter net income fell 79 percent to $207 million, the company reported on Thursday. The insurer said it has taken the first steps to improve the profitability of its general insurance unit, including 200 job cuts this year and an exit from part of the U.S. transportation business. It is also considering adding more reinsurance coverage for the unit and may exit a number of under-performing portfolios. The division had an operating loss of $183 million in the third quarter.