Zurich drops aggregate cat reinsurance at 1.1; can manage from front-end

Zurich Insurance Group resigned from its global aggregate catastrophe reinsurance protection at the 1.1 renewals after failing to nail down acceptable pricing and reinsurer appreciation for its increasingly cat-light profile.

“We couldn't find a reasonable economic proposition,” CFO George Quinn (pictured) told his company’s Q4 investor call of the non-renewed aggregate cat programme.

The change to the overall reinsurance cover brings “a small improvement to the expected results” as the cost of “slightly more volatility”. The vast bulk of 1.1 renewals are non-cat, Quinn claimed, “not so significantly affected by market conditions.”

To Quinn’s count, a theoretical 10% increase in total cat reinsurance costs would put a mere one tenth of a point into the group’s combined ratio. “We are just not dependent on reinsurance in that way.”

Prior year reported reinsurance structures had included a global aggregate cat treaty of $200 and $250 million above a $900 million retention, missing from the latest review, investor presentations indicated.

Zurich did more for its P&L by taking cat risks off the books on the front end.

“I expect that the efforts we are taking to cut cat on the incoming side are more significant” than the “small negative” impact of reduced volatility protection, Quinn said.

Zurich proceeded to add bits and pieces to the top of its US all-perils coverage which Quinn said included new perils and was designed “in particular in the event of a very significant event.”

The US all-perils coverage (full coverage in place, not just elements renewed 1.1) now includes a US earthquake swap, increased cover from the global cat treaty and a widened top layer. Retentions on the US all-perils coverage is reported flat year to year.

Zurich renews the bulk of its US peril coverage to an April deadline and efforts to manage the book to date should help Zurich hold the line on reinsurance costs, Quinn noted.

“The actions we are taking on the incoming side of cat means that there is already a fairly significant reduction in exposure and we would expect that to be part of the consideration when we look at the renewal of our US cat tower April 1,” Quinn said.

The Zurich Europe all-perils coverage looks relatively similar year on year, with a fractional reduction in the core retention and heavy reliance on the global cat treaty.

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