Zurich will adjust reinsurers’ allocations based on new tiering strategy

Reinsurers could find their participation on treaties with insurer Zurich cut back or increased, depending on how they decide to position themselves in the market, Juan Beer, global head of group reinsurance, Zurich Insurance Group, told Monte Carlo Today.

He said that the decision to increase or decrease the company’s panels of reinsurers depends on what is required at any given time to support the delivery of the group’s long, medium and short-term business strategies, financial plans and portfolio actions.

“As we continue to execute on our reinsurance partner tiering strategy we might see shifts in allocation based on how reinsurers decide to position themselves,” he said.

Beer said the decision-making process will also be based partly on how good a partner a reinsurer has been to the company.

“In a nutshell, our approach to reinsurance partner selection is based on a few basic and simple criteria against which our partners are being assessed on a regular basis,” he said.

“This includes their reliability in terms of strength of balance sheet, their credit ratings and their responsiveness in paying claims or following our fortunes, their approach to long-term relationships, the capacity to support Zurich holistically across our entire business portfolio, the capacity they can offer at the line of business level and the advice and insight that they can provide in addition to the capacity they can give us.”

He added that he expects many reinsurers to reposition themselves in the future driven by the challenging market conditions in which they are operating.

“I assume reinsurers will continue to explore opportunities to grow scale and market share or to build more resilient business portfolios or capabilities as and when such transactions can deliver the expected economic returns or operating efficiencies,” he said.

“However, I do not expect any major changes to either reinsurance capital or choice coming from M&A activity in the near or medium term.”

Beer added that one of his biggest challenges now, as a buyer, is striking the right balance between optimising reinsurance purchasing in terms of structures, terms, conditions and spend, while maintaining the integrity of the relationships.

He explains that his objective in negotiating and purchasing reinsurance is to ensure a proper balance between protection and cost.

“Our ultimate aim is to ensure long-term access to solid, sustainable and reliable sources of capital that will help us build our target underwriting and large risk capacity, while protecting our balance sheet and earnings and achieving capital efficiency,” he said.

“This is where maintaining that integrity in negotiating the final deal is of utmost importance.

“As in the past, we will continue to leverage our capital position and participate in the underlying risks through meaningful self-retentions and through co-participations in excess layers, as and when appropriate.”

Zurich does use alternative capital in several forms but Beer stresses the importance of striking the right balance at the right time, depending on the needs of the company. While traditional capital remains appealing at the moment, this may change over time.

“When purchasing external reinsurance, we are striving for the right balance between utilising our own capital and the strength of our balance sheet and accessing external sources of reinsurance,” he said.

“This includes both traditional and alternative forms of capital and the choice of use largely depends on the relative efficiency of those markets at time capacity is required.

“At present we find the traditional market to be a more efficient source of capital in terms of pricing and ease of transacting, but we will continue to closely monitor the developments and flexibly adapt our position as and when sensible and appropriate.”