Swiss Life Holding AG (SLHN), Switzerland’s biggest life insurer, said it will write down the value of its German brokerage AWD Holding AG by 576 million Swiss francs ($618 million), hurting full-year profit.
The Zurich-based insurer said it expects “reduced net profit in the double-digit millions” in 2012 and cut its targeted return on equity to between 8 percent and 10 percent over the next three years from between 10 percent and 12 percent. In 2011, it posted a profit of 605 million francs.
The insurer, which was hurt by a drop of 13 percent in revenue at the German broker unit in the first nine months, will rebrand AWD to “Swiss Life Select,” cut costs by as much as 160 million francs and eliminate up to 400 jobs. The savings come on top of Swiss Life’s so-called Milestone program, with cost cuts of about 400 million francs and some 520 job reductions in Switzerland. Chief Executive Officer Bruno Pfister said today the writedown will “weigh on the 2012 result.”
“The writedown will be done in the fourth quarter so that only a modest profit can be expected” in the full year, said Georg Marti, an analyst at Zuercher Kantonalbank in Zurich. He has an outperform rating on the shares.
Swiss Life declined 1 percent to 124 francs at the close in Zurich, valuing the company at 3.98 billion francs. The stock has increased about 43 percent this year, compared with a 25 percent increase in the Bloomberg Europe 500 Insurance Index.
Under the new program, presented at the company’s investor day, Swiss Life said it expects a full-year operating profit before one-time items of more than 850 million francs. In 2011, it had an operating profit of 793 million francs.
Swiss Life aims for cost savings of between 130 million francs and 160 million francs, as well as “further diversification of profit sources over the next three years.” It will keep its dividend at 4.50 francs a share for 2012.
By comparison, Zurich Insurance Group AG (ZURN), Switzerland’s largest insurer, paid a dividend of 17 francs in 2011.
“All in all, we see little that changes the fundamental view on the stock with the key issue of cashflow not really changing in the near term,” Richard Burden, an analyst at Credit Suisse Group AG in Zurich with an underperform rating on the stock, said in an e-mailed note today. That’s “making Swiss Life unattractive when Zurich and others continue to offer materially higher and more secure payouts.”
The rebranding of AWD could result in the reduction of 300 positions in Germany and 90 in Switzerland, Swiss Life said. Part of them will be conducted through “natural fluctuation, retirement regulations and in-house job opportunities,” according to the statement.
The writedown of the German brokerage unit, valued at 1.34 billion francs, exceeded the 463 million-franc average estimate of five analysts surveyed by Bloomberg.
“We could not keep the profitability of AWD on course,” Pfister told journalists in Zurich.
The insurer also plans to “significantly expand” its asset-management business for private and institutional investors under a new brand called Swiss Life Asset Managers with the goal of increasing its contribution to earnings by more than 20 percent by 2015.
Swiss Life will propose Frank Keuper, former CEO of AXA SA (CS)’s German unit, Ueli Dietiker, chief financial officer of Swisscom AG (SCMN), and Klaus Tschuetscher, prime minister of the principality of Liechtenstein, to join its board. Volker Bremkamp will step down for “reasons of age,” it said.
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