Greco says deeper cuts are needed to trim ‘excessive cost base’

Pensions Insight

Zurich chief executive Mario Greco has revealed how he will save $1.5bn by 2019.

The savings, starting next year, will eventually result in a trimming of 15% of the company’s cost base.

Speaking in the Financial Times, Greco said he would:

* Reduce the number of data centres from 70 to 8

* Not rule out job losses, although there would be natural attrition with a 12% staff turnover each year

* Run a tight ship, meaning there would be little spare cash for acquisitions. If a large deal comes along, shareholders could be asked to put their hands in their pockets

Greco said: “A company like Zurich does not have to chase top line growth ever. We should have targets for profits and loss ratios, but not for growth.”

A key goal is to maintain the dividend, which was 75% of payout to shareholders. Return on equity last year was just 6%, but the plans would boost it to 12%.

Analysts say Zurich has a 35% cost base against income compared to an average industry sector of 25%.

The City rates Greco highly, having watched him whip his former company Generali into shape and they now expect him to do the same with Zurich.

Greco is likely to make SMEs a big focus for Zurich, a sector where the Swiss giant is underweight.

He’s also keen to reduce complexity in the business, having already revealed plans in June to streamline management.

Andy Hughes, analyst at Macquarie, said: “They do seem like stretching targets to me. The challenge is whether you believe they can do it, especially in soft market conditions.”