Over the past few months, market losses in equity portfolios have opened wide breaches in the capital structures of insurance companies. .
To deal with that difficult situation, Swiss and foreign insurance companies, including Zurich Financial Services (ZFS), have announced their need for additional equity. ZFS aims to strengthen its balance sheet and its equity by issuing CHF 3-3.7 bn worth of new shares, a significant sum in view of its present market capitalization of about CHF 10 bn.
The Board is asking for a maximum issue of 86.4 mn shares, even though all of the shares may not necessarily be issued. The shares will be taken over by a syndicate of banks, which will set a provisional issue price and then decide how many of them will have to be issued to cover the capital requirement. The issue price and the final number of shares to be issued will be announced just before the Shareholders’ Meeting on October 11.
Given the importance of the operation for the future development of ZFS, ethos has approved the rights issue in accordance with its guidelines. It is a positive sign that the new equity is intended not to offset poor past transactions but to ensure present and future growth. In the final analysis, half of each extra franc of premium has to be covered by equity.
