Swiss insurer Zurich Financial Services Group has recovered from a tough period and is now looking to the future. Liz Booth interviewed Inga Beale about the company’s expansion strategy.
Times might be tough in the wider economy but for some industry players, years of preparation are paying off as they enter the fray in a strong position. Zurich Financial Services is among them. From a fairly low point back in 2002, the group has spent the past five years stabilising the business, laying the foundations and now, it says, building the future.
Playing a key role in future development is former Converium Re boss Inga Beale who moved to Zurich in the summer as head of M&A and
organisational transformation. Relishing her new role, Beale is fully aware of the many challenges presented by the wider economy at the moment but she is also confident. “The Zurich Group is coming out pretty well,” she says, attributing the confidence placed in the group to “the controlled, disciplined approach to the way we are doing things.”
As part of its long-term strategy, Zurich has been looking to “foster profitable growth and maintain underwriting discipline while improving distribution, new product offering and service quality.”
Part of that has included expansion into new markets as well as development in existing ones. In 2008, Zurich took over a company in Turkey. Beale explains that, as announced back in 2007, the group wanted to move into both Turkey and Russia – an acquisition in 2007 gave it access to Russia and so the Turkish move was simply following on from that stated aim.
She says that the Turkish operation has now been rebranded as Zurich and, thanks to the company’s Zurich Way strategy, the transition has been a success. Its Zurich Way plan, says Beale, gives the group a common approach to underwriting, claims and service so no matter which part of the business is considered, it should all operate to the same standards.
“Because we have the Zurich Way system in place, it has been very easy to roll out our underwriting and claims approach,” she says. “We have not had to sit down and consider what should be done, instead we have been able to simply get on with it.”
Spain has been another target market. Zurich had already stated that it wanted to become a market leader in Spain and in 2008 completed no less than three acquisitions of bank assurers.
Beale says the acquisitions were carefully targeted – in Spain the main distribution channel is bank assurance so these purchases have given the firm access to many more customers – and rocketed Zurich into second position in the market overall.
The largest of the three acquisitions gave Zurich access to both life and P&C customers and is already working well within the Zurich Group.
“Again, it is all a very strategic move to increase our presence,” Beale says.
Further afield, Zurich has recently closed a deal in Brazil – another emerging market, and one where the reinsurance market has just been liberalised. The deal involves a life and P&C bank assurance player.
The group has also completed a couple of smaller deals, including one in Germany and has set up a takaful operation in Dubai.
For the future, the Middle East remains a key area, as does Asia but, to date, says Beale, they have yet to find the right opportunity in the Asian markets. Although many of the 2008 deals have involved bank assurance, Beale says they are by no means restricting themselves to buying up those types of operations.
“If you take the US for instance. We have already seen growth from the direct channels in the UK and it seems these transactions are increasing in the US. So if you look at the US, you would not be looking at bank assurance but rather at the direct market.
“We look at each market and see which is the important channel. We consider the best way to operate in each area and look for the right opportunity.” And she stresses that the firm is still very much on the acquisition trail, looking to bolt on activities that will strengthen the group as a whole.
But she admits it is a funny market to be doing such business in. Both buyers and sellers are nervous about pricing. Although it may seem the right time to be snapping up a bargain, it is not always that easy.
Beale points to the number of deals which go on offer and are then withdrawn – Old Mutual being just one example. In November, it ended attempts to sell Mutual & Federal Insurance Co. For Old Mutual it was the second failed attempt to dispose of the insurer, after it had rejected an offer in March 2008 that was two-thirds higher than its latest price of US$4.4bn.
Across other industry sectors the picture is as bleak and data from Bloomberg showed that the value of transactions to the end of November was $2.4trn – 37% lower than in the same period of 2007.
This was backed up by figures from the UK’s Financial Times which, in November reported the rate of deals collapsing had increased since September. It said announced M&A activity was down 27% in the year to date compared with 2007 and the quarterly rate of withdrawn deals had hit a two-year high.
Added to this, Travelers chief executive officer Jay Fishman was quoted as saying the number of insurance businesses for sale far exceeds demand in the current market.
Which, Beale says, all indicates the nervous state of the market. “People want the market generally to settle down before they will make big strategic decisions. The market is not exactly paralysed but people want calmer conditions.”
There are some distressed sales around, she says, and these can represent good opportunities. Banks for example, may sell off insurance arms because they are not part of the core activity and these can represent extremely good deals for other insurance players, such as Zurich.
But companies need to be cash rich to take advantage. Beale admits that “raising debt to fund acquisition is very difficult. You have to look for other ways if you do not have the cash yourselves.”
She says, however, that the insurance sector should be able to attract investment because of its long-term stability. “If investors look at the long term and at the returns they can actually see returns are fairly consistent and not particularly volatile.
“I think insurance is actually quite a safe bet and that is true for reinsurance too. People often think of reinsurance as less consistent but if you look at the long-term results, that is not true and it is actually consistent.
“As a group, we feel very positive about our position at the moment. When times are tough, people who are protecting themselves want to make sure they are working with quality companies. There is a flight to quality and we are well positioned for that.”
And that is equally true as insurers look to the reinsurance market for their own protection. Beale says: “People want to spread their risks among quality reinsurers. They do not want to narrow their options but they do want to stick with quality companies.
There is a feeling that the combination of quality and a good return on investment may well make the insurance market more attractive for investors – particularly if returns elsewhere are not so certain. “There is already talk among reinsurers that rates need to firm up which has a knock-on impact on insurers. This could make it quite an attractive market to invest in because prices might be going up,” concludes Beale.
Liz Booth is a freelance journalist
Recent Zurich acquisitions
TEB Sigorta A.S. a general insurance company in Turkey with a strong focus on banc-assurance.
50% stake in Can Soluciones Integrales S.A., a jointly owned company with financial institution Caja de Ahorros y Monte de Piedad de Navarra (Caja Navarra) which will enter into an exclusive agreement with Caja Navarra for the distribution of Zurichâ€™s general insurance products.
50% stake in Caixa Sabadellâ€™s life and general insurance companies, CaixaSabadell Vida, S.A. de Seguros y Reaseguros and CaixaSabadell Companyia dâ€™Assegurances Generals, S.A.
50% stake in the life insurance, pension and general insurance operations of Banco Sabadell, while establishing a long-term strategic distribution partnership with the fourth largest bank in Spain.
87.35% in Companhia de Seguros Minas Brasil from Banco Mercantil do Brasil S.A. (Banco Mercantil) and two private investors. 100% of Minas Brasil Seguradora Vida e PrevidÃªncia S.A. (MBVP) from Banco Mercantil including a long-term exclusive bancassurance agreement with Banco Mercantil for the distribution of Life and General Insurance products of Zurich Brasil and the acquired companies.
100% of the personal accident insurer Baden-Badener Versicherung AG
Completion of the acquisition of a remaining 34% minority stake in OOO NASTA Insurance Company (NASTA), which was renamed Zurich Retail Insurance Ltd at the end of 2007.