Zurich cedes 10% more premium ($8.6bn) to reinsurance & retro in 2020

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Global insurance and reinsurance giant Zurich increased its use of and received strong support from reinsurance and retrocessional capital sources in 2020, ceding US $8.6 billion of property and casualty (P&C) premiums to them across the year.

zurich-logoThat’s slightly more than a 10% increase from the US $7.8 billion of P&C related premiums that Zurich ceded to its reinsurers and retro partners in 2019.

That translates to a cession rate for Zurich’s P&C business, across its centrally purchased reinsurance, of 24.2% in 2020, up from 23% in 2019.

For Zurich’s life business, the reinsurance cession rate was 8.8% for 2020, up from 8% in 2019.

Zurich explained that it leverages both traditional and collateralized reinsurance products within its tower, but it seems a shift in strategy is moving it back towards rated covers having a greater share of the program.

That doesn’t necessarily mean less collateralized or ILS fund capacity in its reinsurance program, but it does mean more of that will need to be fronted or transacted through an ILS manager’s own rated reinsurance vehicle.

Zurich said that it typically only cedes “new business” to reinsurers with an A- rating or better and that the share of collateralized reinsurance sources in its program fell to 54% by the end of 2020, down from 57% at the end of 2019.

Under its annual accounting, Zurich noted that its reinsurance recoverables rose to $25.6 billion by the end of 2020, up from $22.8 billion a year earlier.

Finally, Zurich’s U.S. primary company Farmers Insurance cedes much of its risk through a quota share reinsurance arrangement that covers all lines.

In 2020, Zurich said that catastrophe reinsurance recoveries under this all lines quota share for Farmers reached $1.3 billion, which is exactly the same as the level disclosed for 2019.

The increase in cessions doesn’t necessarily equate directly to higher-losses, as it may just reflect Zurich’s own growth in premiums, or more quota share. But with the cession rate also up, it does perhaps suggest a higher level of losses ceded under Zurich’s aggregate cover and perhaps also related to the pandemic.

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