Swiss Life at new highs in 7 years

Swiss Life at new highs in 7 years

Swiss Life  broke above 250 SF hitting a new high in 7 years after announcing it would increase its profit pay-out ratio from a range of 20-40% to 30-50%. Switzerland’s largest insurance company, who paid out 25% of profits in dividend over the past year, was amongst the lowest payer compared to peers. The management who committed a minimum dividend of 8 francs for next year, would start at the lower end of the new range, and gradually increase to reach 50% at a later stage. Additionally the company also gave encouraging updates on its Swiss solvency test (SST) at 140-160%.

Overall this is positive for the stock that should also enjoy greater liquidity when it replaces Transocean  in the SMI index at the beginning of next year.

However the cheer could be short lived. Swiss Life profit margins have been under great pressure with the introduction of negative rates both in Switzerland and in Europe. Considering the current macro environment, risks of a further rate cuts by the ECB and the SNB cannot be ruled out. Moreover to counter the low rate challenge, Swiss insurance companies have increased exposure to risky assets like stocks, high yield bonds, real estate and alternative investments. This makes their business model a lot more vulnerable to market swings. Given these factors, chasing the stock near its records highs may not be the best strategy.

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