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Zurich buying more reinsurance, continuing large commercial cutbacks

Zurich Insurance Group AG is looking to buy more reinsurance and will keep shifting its portfolio away from large, long-tail commercial business.

Speaking to analysts at Zurich's investor day, CFO George Quinn said the company had already increased reinsurance purchasing in liability, having put a large program in place in the U.S. earlier this year. He said the cover is strategic and Zurich expects to keep it over the long run. He also noted that the company had increased reinsurance protection for financial lines earlier in the year "in one of our major markets."

The current focus for Zurich is on catastrophe reinsurance, which Quinn said provides "good value" for the company.

"Even though the exposures are relatively modest, we could bring them down in a few of the areas that maybe haven't been tested so much," he said.

The increased reinsurance buying comes as Zurich works to reduce the volatility of its underwriting results by changing its business mix. Quinn said that analysts should expect to see the company shrink long-tail commercial insurance business in favor of short-tail, and also shrink large commercial overall in favor of retail and coverage for small and midsize businesses.

"That is where we believe the sweet spot currently is," he said.

Zurich is also considering extending a more tactical reinsurance purchase it had made two years ago for U.S. commercial property.

The changes to Zurich's reinsurance program will include some reductions as well. Quinn told analysts that Zurich had reduced the volatility in large claims to two percentage points for the 2016, 2017 and 2018 years from eight percentage points across 2014 and 2015. Zurich is working with its reinsurance provider to scale back on cover for man-made losses "to make it sweat a bit harder for our shareholders," Quinn said.

Hits and misses

Zurich said it is on track to at least hit its financial targets for the 2017 to 2019 period, which include a return on equity of greater than 12%, increasing annual expense savings of $1.5 billion by 2019 compared with 2015 levels, and capital levels covering between 100% and 120% of the amount stipulated by the insurer's economic capital model.

But the company said that the completion of its planned $2.14 billion acquisition of Australia & New Zealand Banking Group Ltd.'s OnePath Australian life insurance business would be delayed until the end of the first quarter of 2019. That deal had originally been projected to close by year-end. This means that Zurich will only benefit from the OnePath Australian life business in its consolidated results for nine months of 2019 instead of the full year.

Quinn told analysts that there are "still some risks" to the new closing date but stressed that the end of the first quarter of 2019 "does look likely at this stage."