Zurich: At the heart of Europe

There was once a time when reinsurers were scattered more widely than they are now. Many cities in Germany had a reinsurer bearing their name; even the US had a plethora of home-grown companies.

A mixture of consolidation and startups choosing Bermuda diminished the number of reinsurance hubs, and Bermuda and the London Market dominated when it came to sources of reinsurance capital. But over time, a new hub also gradually emerged: Zurich.

For companies targeting growth in continental Europe, the Swiss city became the place to be. Its central geographic position, solid regulatory regime and the language skills of many of its residents bred success. The more reinsurers that based themselves there, the more talent there was to recruit from. The brokers knocked on doors, the cedants opened their doors, and more service providers ensured they had expertise in the city.

While it never makes headlines or pushes its business case the way other domiciles might, Zurich is now a seriously important reinsurance hub. At the end of 2016, the Swiss Financial Market Supervisory Authority (FINMA)—the Swiss government body responsible for financial regulation—supervised 55 reinsurers in Switzerland.

The number of reinsurers based there has been steady for several years but the amount of business flowing through those companies has increased.

“While the number of reinsurers remained stable in a challenging market environment, net premiums written by Switzerland-based reinsurers increased by 29 percent in 2016 according to the S&P Global annual reinsurance survey, although some of this growth is driven by large market-leading companies such as Swiss Re,” says Johannes Bender, director of S&P Global Ratings.

S&P continues to view the political stability and regulatory regime of Switzerland as strong and favourable, with the country currently holding a sovereign rating of ‘AAA’, with a stable outlook.

“We expect reinsurers will continue to monitor developments in regulation, taxation and other factors, but to date Zurich has offered a very competitive environment,” Bender adds.

Swiss reinsurers also proved their strength in 2015 during a difficult market environment with a 3.8 percent increase in property/casualty premium volumes, according to the Swiss Insurance Association (SIA, aka Schweizerischer Versicherungsverband [SVV]).

The premium volume for Swiss reinsurers grew a further 26 percent in 2016, with the growth mainly attributed to newly issued large, majority-group internal reinsurance coverings of the five largest companies.

Crossing boundaries

Eva May, head of the financial service cluster within the Business and Economic Development Division of the Office for Economy and Labour for the Canton of Zurich, believes the reasons for Zurich’s popularity with reinsurers are diverse.

“Reinsurance takes place on a largely globalised basis. Markets are held by professional market participants across national boundaries,” says May.

“Switzerland is internationally regarded as a stable and reliable market for reinsurers. In cooperation with the cantons the city of Zurich is campaigning for attractive frameworks for the manifold industry structures.”

May notes that Zurich is very much a traditional financial centre, and from its base of operations there, reinsurers can easily seek to enter new markets across Europe.

“With its concentrated competition-relevant knowhow and the availability of specialised upstream services, the Zurich financial cluster in particular can offer significant advantages for reinsurers that are difficult to replicate,” says May.

While most reinsurers will be using the market as a platform from which to write business across the whole of Europe, there is also the domestic market to consider. Reinsurance giant Swiss Re has the largest share of the reinsurance market of Switzerland at 42.9 percent, according to 2015 figures from SIA.

This is followed by Europäische Rückversicherung at 14.7 percent, Swiss Re Corporate Solutions at 6.6 percent, SCOR Switzerland at 4.1 percent, Euler Hermes Reinsurance at 4 percent, ACE Reinsurance (Switzerland) at 4 percent, Tokio Millennium Re at 3.7 percent, and Amlin at 3.4 percent, plus many more.

Strong foundations

The SIA suggests the reliability of the overall regulatory environment, along with the economic and political stability of Switzerland, guarantees companies excellent parameters for their business activities as well as certainty for their long-term planning.

Switzerland’s infrastructure—its quality of life, education and taxes—also contribute towards its attractiveness as a business location.

The current situation with respect to insurance regulation, however, is less gratifying, according to May.

“Continual legislative revisions provoke uncertainty, and differences between Swiss insurance regulations and those prevailing abroad could potentially jeopardise the competitiveness of local companies,” she says.

The Division’s outlook for Zurich includes both opportunities and challenges, for example a strong Swiss franc depressing the value of international business for reinsurers when translated into the domestic currency.

International reinsurers require access to high quality underwriters and global customers, and insist on modern infrastructure, political stability, and a strong and reliable regulatory regime and favourable tax laws, according to Bender.

“In our view Zurich offers an attractive package for reinsurers, which is reflected by the sizeable number of firms that have chosen to domicile there,” says Bender. “In the current soft market environment the number of new reinsurers being established around the globe is limited, but the number of reinsurers based in Zurich and Switzerland has been consistently high.”

The Canton of Zurich’s business division is very active in attracting more reinsurance business, for example in facilitating and promoting networking along the value chain of companies, research facilities, educational institutions, business associations and further organisations constituting Zurich’s financial services cluster.

The requirements for employees in the reinsurance sector are particularly high, and often require more technical and methodological competences.

May adds: “Switzerland fulfils these requirements with its high level of education and Zurich is especially well known for its high quality universities, including ETH Zurich (the Swiss Federal Institute of Technology) which consistently ranks amongst the top 10 universities worldwide.

“Proximity to the specialised business university HSG in St. Gallen renders Zurich even more attractive when it comes to connecting reinsurers with highly educated professionals.”

Furthermore, the division says that insurtech startups are networking with universities—for example regarding research on big data—and are also developing innovative insurance products, establishing new sales channels, or remodelling consulting or claims handing.

One fifth of all employees in the insurance sector in the Zurich region work for a reinsurer (4,000 full-time equivalents), and the national average of this share is 9 percent, according to the Federal Statistical Office in Switzerland.