Zurich explains tough logic behind its cull of reinsurers
Zurich Insurance Group will have almost completed the deep cuts it is making to its reinsurance panel by the end of the Baden-Baden conference, leaving it with relationships with only 20 players, Markus Meier, head of reinsurance management, Zurich Insurance Group, told Baden-Baden Today.
Meier admitted the cull had not been easy but he expected the changes to be permanent. To decide which reinsurers remained, Zurich had first split reinsurers into three categories: core, broad and transactional. It then further analysed those in the first two categories for the qualities it wanted in its partners.
“We wanted to work with reinsurers with a solid financial performance and sustainable business model; with substantial capacity and risk mitigation solutions that can be deployed globally; and which have a strong client focus and deep understanding of clients’ needs,” Meier explained.
“We have talked to all our reinsurers a great deal and we have been very transparent in terms of where we see them. Not everyone has liked the message we have given them but that is inevitable in such an exercise. On some programmes we are already at around 20, on others we have a few more decisions to make, but we are almost there.”
He said the most common objection from discarded reinsurers has been that Zurich will lack diversity on its panel but, he said, working with a smaller number of well-run players was good risk management because it would also allow the insurer to keep closer tabs on the performance of its partners and flag up any concerns early.
“We follow the performance and strategic direction of our partners very closely,” he said. “We even have forward-looking key performance indicators for each. If we see an anomaly, we will raise it with them.
“It also helps when a reinsurer has someone in the organisation senior enough to drive the relationship with us forward and make real decisions. We don’t like working with different underwriters operating in silos. We believe a more holistic relationship with clients is needed.”
Meier said that these changes have been made against the backdrop of a prolonged soft market that definitely suits buyers. Unlike more opportunistic buyers, as Zurich settles on its core panel of reinsurers it will not be aggressively pursuing rate reductions, he said.
“If the market is moving, we want to enjoy the benefit of that as well,” he said. “But we buy in a very strategic way and we always have skin in the game. So we would not push down rates in the way some buyers would. Very soft rates would worry us too.”
The company’s rationalisation of its reinsurance programme, while largely driven by the increased sophistication of the insurer and its careful management of both capital and risk appetite, will also help it cut costs in the coming years.
Zurich has publicly stated it wants to improve its profits by $1 billion by the end of 2018, an aim that will largely be achieved by making savings in the fields of shared services, human resources, finance and communications.
“Our target return on equity is between 12 and 14 percent and to achieve that we need to be more efficient and make better use of technology to drive the business forward. We also need to be better on the operations side and the way we look to develop new products.”
Meier said Zurich would be looking to embark on a journey with its reinsurers in its approach to underwriting some new products.
“Cyber risk is one area where everyone sees growth but there is a lot of uncertainty on what will drive potential claims,” he said. “In other areas we want help from our reinsurers. There are many cat-prone areas with no reliable models, for example.
“August’s explosion in the Chinese port of Tianjin proved that it can be hard to know where hotspots are.
“We want partners with knowhow. If we go into a new line of business or product we want the right partners beside us and that is also what this process of rationalisation has been all about.”
