Zurich’s cessions to reinsurance & retro rise another 7% in 2021

Global insurance and reinsurance giant Zurich reported that through 2021 it once again lent more heavily on reinsurance and retrocessional capital sources, ceding US $9.2 billion of property and casualty (P&C) premiums to them, an increase of 7% over 2020.

$9.2 billion of P&C premiums ceded to reinsurance and retrocession sources is the highest Zurich has reported to-date, reflecting the strong growth of its business and its continued use of protection to help moderate its exposure to natural catastrophes in particular.

A year ago, Zurich reported that it ceded US $8.6 billion of property and casualty (P&C) premiums, which represented a 10% increase on the US $7.8 billion ceded to its reinsurers and retro partners in 2019.

The fact the figure rose to $9.2 billion ceded in 2021 is not surprising when you consider Zurich’s exposure to two of the key catastrophe loss events of the year, hurricane Ida and the European flood events.

Those events, along with other catastrophes and severe weather losses, caused Zurich to exhaust its catastrophe aggregate reinsurance treaty before the end of the third-quarter in 2021, as we reported at the time.

Yesterday, we reported that Zurich has now renewed its reinsurance for 2022, including a catastrophe aggregate treaty, but that this was seemingly at tighter terms, as the insurer will now retain more exposure as the attachment rose, deductible terms changes and co-participation increased significantly.

But driving home the importance of its reinsurance arrangements, Zurich continues to lean heavily on reinsurance and retrocession partners and that is likely to continue.

This is a trend we expect to see increasing over-time, with a volatile loss environment and uncertainty over climate risks driving re/insurers to become better protected and to make use of third-party capital, be that traditional reinsurance/retro or insurance-linked securities (ILS).

For 2021, Zurich reported a cession rate for its P&C business of 23%, across its centrally purchased reinsurance and captives, down slightly from 24.2% in 2020, and aligned with the 23% reported for 2019.

Excluding captives, Zurich’s P&C cession rate was 14.2% for 2021, closer to 2020’s 14%.

Zurich’s life insurance business reported a cession rate of 10.8% for 2021, which is up on 2020’s 8.8%.

Zurich continues to leverage both traditional and collateralized reinsurance markets to protect itself against single large loss events, as well as multiple events, or event frequency.

Zurich’s reinsurance mix remained relatively static for 2021, with unrated and collateralized markets making up a similar proportion of its overall reinsurance related assets as the prior year.

In fact, 54% of Zurich’s reinsurance cessions to carriers rated A- or below were to collateralized players, which is the same percentage as in 2020, although this includes other reinsurers and captives that collateralize their limits, so is not a direct representation of the mix of ILS players in Zurich’s program.

ILS markets are likely fronted in the main for Zurich’s main program, as the insurer does prefer to cede new risk to A- rated or better reinsurance entities.

Zurich’s increased cessions don’t necessarily equate directly to higher-loss experience, although the company did report catastrophe losses above expectation and the prior year.

But they do also reflect Zurich’s own growth in premiums, P&C premiums rose 11% in 2021, as well as its quota share arrangements.

But buried within these figures are the exhaustion of the aggregate reinsurance treaty and other recoveries made throughout 2021, which have clearly supported the insurers performance through the year, demonstrating the importance of a robust reinsurance and retro program for Zurich.