Wilhelm “Willi” Zeller retires as CEO of Hannover Re this month. But he is full of future plans.

After 13 years at the helm, on 30 June Hannover Re Group’s CEO Wilhelm “Willi” Zeller will step down at the German reinsurer. He will be succeeded by Ulrich Wallin, a qualified lawyer who has sat on the executive boards of Hannover Re and E&S Rück since 2001. The plan is for Zeller to retire, but ask the energetic 65-year-old about his plans and you quickly get the impression that his idea of retirement is different from that of most other people.

“I will obviously glide over from an executive role to several international non-executive functions,” he says. “I’ve been approached by several institutions, mainly from North America and the UK,” and have been offered board mandates and consultancy work for investment banks, private equity firms etc. I hope I won’t have a full-time job. My ideal situation would be to maybe work for 50% to 60% of the time I’ve worked so far. So that will be the only change and I’m looking forward to it.”

Zeller is known for his work ethic and determination and it seems that even in so-called retirement he has no intention of slowing down. Anyone who has met him will testify to his vigour, charm and easy smile. At Hannover Re, his pragmatic approach and no-nonsense management style are credited for much of the company’s success.

He is not afraid of making tough decisions or of learning from mistakes. “Anyone who tells you he has never made a mistake is obviously just unaware of the many mistakes he has made.”

He admires entrepreneurial people, who create businesses from the ground up, and picks out a couple of the bigger industry personalities as examples. “Hank Greenberg comes to mind first.

In spite of what has happened to the empire he has built he was certainly a very gifted entrepreneur. Warren Buffet, by hand-picking Ajit Jain, has built a unique reinsurance empire that is unparalleled.”

Zeller has a career in (re)insurance that spans over 40 years. He began his career in primary insurance in 1962 under the German apprenticeship system, which involved a three-year programme of vocational learning and exams. He then went on to study

business in Cologne. His first insurance role was with Zurich Insurance Company (1970-1977) in the company’s German head office in Frankfurt. Then in 1977 he joined Cologne Re as an executive member. After almost two decades he was taken on as CEO of Hannover Re, taking the reins on 1 January 1996.

A lost year

If he wanted to go out with a bang, Zeller will be dealing with disappointment. Having steered the reinsurer through major catastrophes – including 9/11 and Hurricane Katrina – in his last year he was forced to contend with the world’s worst financial crisis since the Great Depression. Unsurprisingly, he is ready to put 2008 behind him. “It has to be seen as an isolated situation – a lost year – which we should forget as soon as possible. We are looking forward and taking advantage of the new situation that presents itself as a result of the financial crisis.”

Despite recording a low combined ratio of 95.4%, Hannover Re’s 2008 results were severely dented by losses on the investment side of its balance sheet. With 8% of invested assets in equities (these have now been sold off) it experienced writedowns and losses of € 640.9m, bringing in a group net loss (after taxes) of € 127m. “Last year was a regretful experience. All the more so as our core business – the underwriting account – was doing very well,” says Zeller.

Having sold off virtually all the group’s equity investments in October last year, he feels confident about Hannover Re’s portfolio going forward. “We do expect some hiccups in the course of this year in the area of corporate bonds and private equities, however this should not be more than say €100m – so in relation to our more than €20bn of invested assets this will be less than 1% – so that situation is pretty much under control.”

Hardening market

Having dealt with the disappointments of 2008, Zeller is unflinchingly upbeat about the company’s position now. He predicts a 30-35% growth rate for the group’s life and health business this year, which he expects will be buoyed by the recent acquisition of the ING individual life reinsurance business

from Scottish Re Group. He is clearly a fan of this particular class of business, which is “more reliable and predictable”. By contrast, non-life is “cyclical and very volatile”. Nevertheless, he is also optimistic about non-life’s prospects for this year, predicting double-digit growth.

He bases his optimism on the fact that demand for reinsurance from cash-strapped primary insurers has shot up. “If we take the US market as a proxy for the entire insurance world, then in the non-life area alone the US primary market has lost close to 20% of its capital. The life insurance market has lost close to 30%. So there’s a real shortage in capital and these days to turn to the capital markets to replenish those holes is at least difficult if not impossible. So the only capital substitute that is left is reinsurance.”

He expects hardening to continue through 2009, but not for all lines of business. For casualty classes, rates have begun to stabilise and he expects some increases “but nothing dramatic”. Property – including property catastrophe and property-per-risk – and marine and energy is where the real hardening is taking place. These more capital-intensive lines of business are responding to the illiquid market as well as increased demand. The “signs of a really hard market” (ie, shortfalls irrespective of the rate quality) are so far only in the credit and surety business. “Even against the backdrop of rates increased by up to 50%-100%, programmes cannot be fully completed anymore.”

Despite the current opportunities in non-life reinsurance, Zeller reveals that Hannover Re is moving towards a more equal balance of life and non-life. “Pretty soon our top line might be 50:50 life and non-life. Then you can speak about a stable company that is balanced and in a position to smooth the volatility, to balance the cycles, etc. This is what I foresee for this company.”

Taxing issues

Zeller has battled the German tax man in his years at Hannover Re. For a time, when the corporate tax rate was 40% – one of the highest in the world – there was an expectation that the reinsurer could be forced to redomicile. But Hannover has not gone the way of other European re/insurers in choosing lower tax domiciles. After much lobbying from industry, the German government under Chancellor Angela Merkel agreed to tax cuts in 2008. This brought the effective corporate tax rate to a little under 30%.

“Germany is not a bad place for a reinsurance company,” says Zeller. “But it used to be a burdensome place from a tax point of view. Before the corporation tax reform, frankly we considered other jurisdictions – whether they would be more favourable for us.” Luxembourg and Ireland were on the list of potential domiciles, although Bermuda was out of the question as the reinsurer does not partake in delegated underwriting authority.

“With our non-life business we practise a centralised approach. So everything is controlled from home office and therefore we need a head office with 1,000 people and you can never have that in Bermuda or Ireland.” For now, with its more favourable tax regime and an otherwise level regulatory playing field across Europe “the best place for Hannover Re to transact our non-life business is Hanover in the state of Lower Saxony”.

Zeller thinks Solvency II will bring more stability and sophistication to the industry, but has no doubt that it will be a tough road ahead. “The regulations will require companies to have their own risk management models, their own capital models and the discipline of capital allocation will be much more sophisticated and with that also pricing. So yes, the increased regulation will be a burden and not fun at all, but on balance it will be to the benefit of the industry.”

But Solvency II is just the latest development in the continued evolution of the reinsurance business, which Zeller has watched first hand. He remembers his early days as an apprentice, where he and the other staff worked weekends to input data into an electronic processing system. “You probably cannot imagine such a situation – but everything before was done by hand.” It was another era, a far cry from today, where “the world without computers is unthinkable. We experience this every now and then. If the IT breaks down for two hours there’s an involuntary two-hour break for the entire company.”

For Zeller, the reinsurance industry has changed immensely. “When I started in the reinsurance business 32 years ago there were no real pricing tools or analytical systems to speak of. People were arguing about whether reinsurance was a science, a craft or an art – and many were proud enough to say it was a little bit of everything. Today, of course, we transact the reinsurance business completely differently. Reinsurance during the past five to ten years has become much more professional and I think going forward it will, not least for this reason, be less cyclical than the primary insurance business.”

Another major change has been the advent and development of catastrophe models. “Even 15 to 20 years ago when there weren’t such tools, the fundamentals of our business were much more unreliable, and so we are much better off today.” But a fool with a tool is still a fool, he says. “We have clearly concluded after Katrina, and again after Hurricane Ike last year, the tool is one input we use, but don’t forget to also apply your commonsense. Only both together lead you to sound results.”

As he watches the industry move into its next chapter it seems certain that Zeller will not just be a passive observer. But he is looking forward to taking a step back and spending more time with his family. “Other people will continue to carry the responsibility and I will have the fun,” he jokes. He is also looking forward to a life outside of work. “I’m a very sporty guy – I jog every day at six in the morning and go to the gym regularly. I love the arts, I love classical music – and you won’t believe it, but I still like travelling in spite of the huge amount of travel I’ve done in my 32 years as a reinsurer.”

As he jets off to enjoy countries he’s visited many times before but never had the chance to explore, Zeller is modest about his achievements. “I managed to avoid the greatest mistakes – if you can say that after a long professional career you have accomplished quite a bit. The second thing is assembling a good team around you and I was very fortunate in succeeding in that regard. And a little bit of good luck. Even the smartest guy cannot be successful without that.”


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