Zurich Insurance Group Ltd has reported continued growth in its Global Corporate business in 2014, but adverse development in prior years and a re-underwriting of some European business led to a decline in the unit’s yearly profits.
Zurich Group’s net income declined 3% to $3.9bn in 2014, hurt by a 20% fall in fourth quarter operating profit. Martin Senn, Zurich’s chief executive officer, noted that the results were below expectations and showed the need to do more.
The insurer’s Global Corporate unit also saw its profit fall to $767m in 2014 from $879m in 2013, while the combined ratio deteriorated 1.9 percentage points to 96.2% for the full year. Last year was a ‘mixed bag’ for Zurich’s large commercial business Global Corporate, said Mike Kerner, CEO General Insurance for Zurich globally.
“We are happy with the growth in our General Insurance and Global Corporate units-especially in current market conditions-and the progress that we have made on our strategic investments,” he said.
“We saw improvements in our attritional and large loss ratio from underwriting actions and rate increases, although this was partly offset by an increase in expenses as we continued to invest in Global Corporate and in our commercial business in North America,” Mr Kerner told CRE following the publication of Zurich’s results last week.
“There is still a need to improve efficiency, and we will continue to work on this in 2015, but with more urgency,” he added.
According to Mr Kerner, Zurich continues to execute its corporate strategy set out in 2013. It is seeking to make efficiencies, tackle underperforming parts of the business and grow in certain areas, most notably Global Corporate.
Despite market conditions and economic uncertainty in Europe, gross written premiums for Global Corporate grew 3% to $9.43bn, reflecting higher client retention (towards 90%) and new business production, particularly in the US.
Growth also reflected premium rate increases of 2% across Global Corporate in 2014. The pace of rate increases slowed in the fourth quarter. Zurich said that Global Corporate had achieved modest rate increases in all regions apart from Asia Pacific, and in all lines of business apart from property.
“Large account property catastrophe business is under pressure while other risks are at expected levels. Rates are coming down, impacted by alternative capital and less expensive reinsurance, which is enabling rate reductions on the primary side,” said Mr Kerner.
Despite rating pressure in property insurance, Mr Kerner believes that the corporate insurance market remains ‘rational’.
Gross written premiums for Global Corporate were also negatively impacted by re-underwriting actions in Europe, explained Mr Kerner. One area in which Zurich took action and sought rate increases was its large German account business, in particular motor, he said.
Given its growth plans, Zurich is investing in its Global Corporate business, explained Mr Kerner. For example, it has been developing its My Zurich Portal to give risk managers more access to information on their insurance, claims and loss control. The insurer will continue to invest in data and analytics for its large commercial clients, something it has already been doing in personal lines.
Zurich already has high market penetration in the global corporate space. It insures 461 of the Fortune 500 companies. Therefore growth will most likely come from existing clients, mostly through increasing ‘product density’ and cross selling opportunities, explained Mr Kerner.
For example, Zurich has met with some success in cross-selling property/casualty and life and benefits products. According to Mr Kerner, the insurer doubled the number of new ‘common customers’ served by its Global Corporate and Global Life business units. This is well ahead of Zurich’s 2014 target, he said.
The two units are now working in a unified manner and investing in relationship management and product development, said Mr Kerner. He noted that risk managers and HR departments are increasingly working together on holistic solutions to benefit and casualty risks.
Continuing demand for multinational insurance programmes is another bright spot for Zurich’s Global Corporate business, according to Mr Kerner. While companies in Europe may struggle to grow in national markets, they are increasingly looking for growth across borders, which creates opportunities for Zurich’s international programme business, he said.
Growth in Global Corporate could also come from new products linked to emerging risks. Zurich is seeing an up-tick in demand from European clients for cyber insurance products, a market now worth some $3bn worldwide, said Mr Kerner.
There are also plans to improve Zurich’s supply chain insurance product to make it more attractive to buyers. “There is some growth in our supply chain product, but it has not been remarkable. We have discovered that clients find the holistic approach to supply chain underwriting too complicated, and are not necessarily prepared to invest time and efforts into it, so we need to streamline the process in order to get it to sell,” he said.
Zurich’s general insurance business saw operating profits up 1% to $2.89bn, but falling by 30% to $518m in the fourth quarter. The general insurance combined ratio improved 0.7% in 2014 to 97.3%. This reflects an improvement in underlying loss experience and the absence of major catastrophe losses, offset by lower favourable development in prior years.
Zurich’s general insurance business in Europe, the Middle East and Africa (EMEA) saw no growth in premiums overall. Challenging market conditions in Italy and lower volumes in South Africa offset growth in UK, Germany and Spain. Rate increases for general insurance on renewal remained stable at 2% in the fourth quarter. Zurich said they were mostly stable with increases in the UK, Germany and Spain, but reductions in Italy.
Gross written premiums increased 2% in North America Commercial, although Zurich reports market pressure on rates especially in property lines. International market premium increased 8%, with rate increases of 4%. Actions to improve profitability in Latin America were partly offset by commercial rates softening in Australia, said Zurich.
Outside of Global Corporate business, the EMEA and North America units both produced a combined ratio of 96% for the full year, while Zurich’s international business produced a combined ratio of 105%.
Source-Commercial Risk Europe
