Zurich renews aggregate catastrophe reinsurance at tighter terms

Global insurance and reinsurance giant Zurich has revealed its new reinsurance program for 2022 and it appears that tighter terms and a tougher market for placing aggregate limit has resulted in a higher attachment point, adjusted deductible and a larger co-participation being taken.

Zurich exhausted its aggregate catastrophe reinsurance protection during the third-quarter of 2021, as significant losses from hurricane Ida and the European floods took their toll on the re/insurer.

The company suffered large losses from both those events, as well as other severe weather and catastrophe outbreaks during the last calendar year, which served to completely erode its aggregate reinsurance protection.

For 2022, Zurich’s reinsurance program has notable changes on the aggregate side of its protection.

First, the global catastrophe aggregate reinsurance treaty, which for 2022 now attaches for Zurich after a US $900 million retention.

That’s $100 million higher than the 2021 aggregate retention, which analysts this morning have noted suggests that Zurich will be more exposed to catastrophe losses through the coming year.

You can see Zurich’s catastrophe reinsurance program for 2022 below.

As well as raising the retention, Zurich has also changed its co-participation in the aggregate reinsurance protection it has in-force for 2022.

For 2021, Zurich had a 10% co-participation on both a US $250 million global aggregate catastrophe reinsurance treaty and a US $200 million combined global aggregate and occurrence treaty.

For 2022, the co-participation on the $250 million global aggregate cat treaty now stands at a much higher 42.75%, while the co-participation for the $200 million combined agg/occ treaty is at 35.25%.

Again, this implies more chance of Zurich retaining catastrophe and severe weather losses in 2022.

The final change to the aggregate reinsurance side is that Zurich had a franchise deductible in place for 2021, so that losses of US $45 million or greater could count towards the erosion of the aggregate retention during the year.

For 2022, Zurich has purchased its aggregate reinsurance with a fixed occurrence deductible of US $35 million.

Now that is a better arrangement, in terms of more loss events will qualify towards its aggregate towers erosion. But it also means that will erode quicker, raising the chances of it attaching throughout the year.

We don’t know the specific terms of the new fixed occurrence deductible, compared to the franchise deductible. But fixed occurrence deductibles are generally thought better by those offering the aggregate reinsurance coverage. This is a feature we’ve increasingly seen in catastrophe bonds this year.

As a result, it doesn’t necessarily read-across that the fixed deductible will enhance Zurich’s cover, as it may actually mean fewer types of events qualify, although those that do can erode the retention faster.

The aggregate reinsurance changes mean less aggregate coverage though, but with a higher deductible and a greater share being retained through co-participation, this effectively means less aggregate cover for 2022 for Zurich.

It’s no surprise to see these changes, given the way the reinsurance market has hardened and also differentiated on loss experience of cedents.

Aggregate covers have been particularly challenging to place at the January 2022 renewals and even a carrier of the size and stature of Zurich has seemingly been affected, resulting in the reduction in aggregate reinsurance cover.

As a Group, Zurich reported its catastrophe losses in 2021 went some US $806 million above its anticipated level of 3.5% of net earned premium for the year, adding 6.4% to the combined ratio and higher than the prior year.

However, overall Zurich delivered one of the best annual results in its history, with the aggregate reinsurance protection playing a role in supporting this.

Zurich said this morning that its business operating profit and net income attributable to shareholders were the highest since 2007, with growth across all its segments.

Group Chief Executive Officer Mario Greco commented, “Zurich has delivered the strongest performance in a long time, demonstrating the strength of our franchise, the quality and commitment of our people, and the benefits of repositioning the business in recent years.

“The P&C business achieved the best combined ratio in 15 years and double digit top- line growth. Higher risk-adjusted prices and continued measured progress towards our growth ambitions took P&C gross written premiums to more than USD 40 billion for the first time.

“The extreme weather events of 2021 again highlight the pressing need to take collective action to address climate change. The insurance industry has a natural alignment with the sustainability agenda, and I am particularly proud of our work in this area throughout the past year as we continue to reinforce Zurich’s leadership position.

“Zurich continues to benefit from an excellent balance sheet and financial flexibility. This, together with our strong operating results, has allowed us to propose a 10% increase in the dividend per share to CHF 22.

“Zurich is in outstanding health as we celebrate our 150th anniversary this year. I am optimistic about Zurich’s momentum, the skills and enthusiasm of our people and the opportunities that lie ahead of us. I have every confidence we will meet or exceed our 2022 targets.”