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Zurich to cut more costs, target achievable profit growth

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(Reuters) — New Zurich Insurance Chief Executive Mario Greco pledged on Thursday to keep dividends at least steady through 2019 and stepped up cost cuts.

The executive brought in from Generali in March to engineer a turnaround for the troubled group promised to make the company more efficient while trimming the group’s main profitability goal to a more achievable level.

“We have a complex business model that needs to be simplified, we have a high cost basis that can be reduced, and we have an accountability weakness that we are tracking through organizational changes,” Mr. Greco told journalists ahead of the group's investor day in London.

Zurich, which was already in the midst of a $1 billion-plus cost-cutting drive when Greco came on board, now aims to generate net savings of $1.5 billion by 2019.

It will maintain a dividend of at least 17 Swiss francs ($16.95) per share as part of its 2017-2019 targets while growing towards a more ambitious goal of paying out around 75% of net profit.

After two cycles in which the Swiss insurance group has missed or is expected to miss profitability targets, its newly lowered target for return on equity of more than 12% of business operating profit after tax represented a more achievable goal, analysts said. It had targeted 12% to 14% for the prior three years, missing that range through September 2016.

Mr. Greco is widely seen as the architect of a rapid turnaround at Generali that helped almost double the Italian group’s share price. He has so far combined Zurich’s life and general businesses as well as its corporate and commercial businesses, and introduced a new regional structure to continue untangling a famously complicated organization.

Restructuring steps would cost an expected $500 million per year on average in 2017 and 2018, Zurich said. Additional savings would be achieved mainly by reviewing technology systems and contracts as well as shared services procurement processes.