Bigger reinsurers will benefit as Zurich to merge and further rationalise global placements

Zurich Insurance will seek further efficiencies in its reinsurance programme by combining parts of its two major placements globally, in a move that will benefit its core reinsurance partners at the cost of some smaller players, Markus Meier, head of reinsurance management at Zurich Insurance Company, told Baden-Baden Today.

The insurer has made fundamental changes to its reinsurance programme in recent years, centralising its buying strategy and cutting large numbers of smaller reinsurers from its panels in favour of working with a smaller number of large reinsurers on a global basis.

To put the changes it has made in context, when Meier started with the company in 2003, it was spending in excess of €3 billion ($3.3 billion) on reinsurance. While he will not reveal the exact amount it spends now for confidentiality reasons, he said it now stands at between €1 billion and €2 billion, but is closer to the smaller number.

“We have driven hard to achieve efficiencies in recent years by centralising what we do but we are not yet at the end of that journey and there is still room to improve,” he said. “We are looking to further reduce placements by bundling different programmes together.

“Where we have separate risk carriers in different territories it makes sense to strive to look at doing one global placement.”

Meier explained that as things stand the insurer operates two placement hubs: one based in Schaumburg, near Chicago, which is headed by Brian Kernkamp and handles all North American placements; and one in Zurich headed by Meier, which handles the rest.

They both report into Juan Beer, the global head of group reinsurance at Zurich.

Meier said the company is examining areas where each hub is responsible for similar placements that could be combined at a global level.

“It would make sense on some types of business; there will economies of scale that we cannot ignore,” he said.

A natural consequence of such a move would be that it would further benefit Zurich’s core reinsurance partners which are big enough to handle such a placement globally. “That would be a natural outcome of such a move,” he admitted.

Meier stressed that the insurer does work with some speciality and niche reinsurers and values their specialist offering on certain lines of business. It also deals with smaller, local reinsurers in countries where regulatory requirements dictate that a percentage of business must be placed locally.

“Our aim is to be compliant in terms of tax and regulatory requirements but to optimise our risk:return ratio,” he said.

In addition to potentially further rationalising its programme, Meier said the insurer would also want pricing on its programmes to reflect wider trends in the market—in other words, if the wider trend is one of further softening, Zurich would also seek reductions.

There is a dilemma with this, he admitted. He would prefer a stable pricing environment based on long-term relationships of trust. But there is also an expectation that Zurich would benefit from these wider market trends and, he points out, if its competitors are getting cheaper reinsurance and Zurich does not, they also gain a competitive advantage.

He also stressed the importance Zurich now places on long-term relationships with its core reinsurance partners—generally bigger players able to work with it on a global basis. He said they were selected based on many other criteria including balance sheet strength, responsiveness on claims and approach to innovation.

While he stressed that nothing is carved in stone, he also admitted that Zurich no longer easily considers working with new partners. “In a sense that train has left the station,” he said when he asked if Zurich considers working with new or expanding reinsurers.

“The companies we originally selected had first-mover advantage. We value that relationship and we are on a journey together. It might be different on new lines of business, but the cake has not been growing in terms of our reinsurance placements and we are still implementing further efficiencies.”