Zurich Financial Services
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Case Code: BSTR113 Case Length: 24 Pages Period: 1990 - 2002 Pub Date: 2002 Teaching Note: Not Available |
Price: Rs.500 Organization: Zurich Financial Services Industry: Financial Services Countries : Switzerland Themes: Corporate Strategy |
Abstract Case Intro 1 Case Intro 2 Excerpts
"The only people who buy Zurich shares now are traders speculating on whether Hüppi will go."
- Julia Münchschwander, an analyst at Metzler Bank, a Frankfurt private bank.
"The industry has to come together and deliver to policyholders what it said it would. The cost will be huge. But that is what clients pay for and it is our job to deliver what we said we would during times of trauma."
- Sandy Leitch, UK chief of Zurich Financial Services.
Introduction
Zurich Financial Services (Zurich), based in Switzerland, was Europe's third largest insurance company with revenues of US$38.477 billion in the financial year 2001. The company had emerged as a major player in property and casualty insurance, life insurance, and fund management in Switzerland, the US and the UK.
Founded in 1872, Zurich had offices in more than 60 countries and employed more than 70,000 people who served 38 million customers worldwide. Zurich offered a wide range of products and services in financial protection, insurance, risk management and asset management. In 2001, Zurich's gross written premiums, policy fees and insurance deposits amounted to $56.2 billion. The company's revenues rose from $37.41 billion in the financial year 2000 to $38.48 billion in 2001, recording an increase of 2.85 percent. However, the company recorded a net loss of $387 million in 2001 as compared to the net profit of $2.32 billion in 2000. On December 31, 2001, Zurich had $403.45 billion worth of assets under management including funds managed for the third party institutional and retail customers.
According to the Fortune 500 ranking conducted in 2000, Zurich was rated as the world's fourth largest company in the insurance industry in terms of revenues. In a Forbes 2002 survey, Zurich ranked 12th among the world's most admired insurance companies. The companies were judged on the basis of the following nine attributes - innovativeness, employee talent, use of corporate assets, social responsibility, quality of management, financial soundness, long-term investment value, quality of products/services and the extent of globalization. In the survey, the company was ranked 7th for its globalization initiatives. Since the late 1990s, Zurich was facing several problems. The company's expenses were rising much faster than its revenues as it added more and more head-office staff to look after its expanding operations. The price of Zurich shares fell down significantly from $1100 in 1999 to a low of $300 in late 2001. The company's CEO, Hüppi was held responsible.
Analysts felt that Hüppi had not managed the group well and was not willing to delegate key responsibilities, which led to the exodus of several senior executives in 2001. To add to Hüppi's problems, Zurich recorded a net loss of $387 million for the financial year ending December 2001. The September 11, 2001 attacks on the US cost Zurich an estimated $900 million in insurance payouts. Because of the significant price decline in technology stocks and poor performance in the equity markets across the globe, Zurich's realized capital gains from equity investments also fell down by $2.3 billion in 2001. Analysts considered it to be a result of Zurich's overexposure to Internet stocks. With lot of criticism against the mismanagement of Hüppi and the company coming into losses, the Board of Directors of Zurich finally appointed James J. Schiro as the CEO on May 17, 2002....
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