Thursday, 7 March 2024 Reading time : 2 minutes

The Swiss insurers Zurich Insurance and Swiss Re have recently released their earnings and they are both planning to increase their payouts to shareholders. Zurich Insurance, Switzerland's largest insurer, intends to raise its dividend by CHF 2.00 to CHF 26.00 per share. Reinsurer Swiss Re also plans to increase dividends, proposing a rise by USD 0.40 to USD 6.80 per share.

But what role do dividends play in the context of structured products? If investors buy a yield enhancement product on stocks, for example a barrier reverse convertible, they forego dividend payments. In return, they receive a guaranteed coupon and partial protection against price setbacks if the structure is equipped with a barrier. The higher the expected dividend yield of the underlying, the cheaper the option is, other factors excluded. The issuer therefore has more capital available for the construction of the structured product and can offer better terms.

The key factor is therefore the expected dividend yield, which is calculated as the ratio of the estimated dividend payment to the current share price. For the Swiss market, as measured by the Swiss Performance Index, the expected dividend yield over the next twelve months is 2.8%, according to Bloomberg estimates. In this context, Swiss insurers appear attractive. Zurich Insurance shows an expected dividend yield of just under 5.7%. Swiss Re's ratio is roughly the same. Swiss Life's estimated dividend yield is slightly lower at 4.75%. The next update will follow on 14 March, when the company presents its annual results and provides information on its dividend policy.

The dividend yield is only one factor taken into account when structuring a yield enhancement product. However, the generally high and reliable dividends paid by insurance companies make barrier reverse convertibles on insurance stocks relatively attractive. With the following products, investors are partially protected against price losses, as high dividend yields do not always go hand in hand with positive price performance.

Callable Barrier Reverse Convertible on Zurich Insurance, Swiss Life und Swiss Re
Coupon: 8.15% p.a.
Barrier: 65%
Term: 18 months

Callable Barrier Reverse Convertible on Zurich Insurance, Swiss Life and Swiss Re
Coupon: 7.50% p.a.
Barrier: 70%
Term: 18 months

Indicative terms

 

Disclaimer
This communication is for marketing purposes. It is neither an offer nor an invitation to submit an offer, to purchase or to subscribe to securities and does not constitute investment advice. You should consult your advisors before making an investment decision.
Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, financial condition, development or performance of the issuer to be materially different from any future results, financial condition, development or performance expressed or implied by such statements.
The present document has not been drawn up by the research department as defined in the rules of the “Directives on the Independence of Financial Research” published by the Swiss Bankers Association, hence these rules do not apply to this document.
If securities are mentioned in the communication, the base prospectus, the final terms and any key information document may be obtained free of charge from Zürcher Kantonalbank, Bahnhofstrasse 9, 8001 Zurich, VRIS, and from www.zkb.ch/finanzinformationen.