ING and Zurich enter asset swap deal and alliance

ING Canada has acquired Zurich North America Canada’s personal lines book of business as well as its commercial business valued at less than $50 million through an integrated cash and “asset swap” deal. In total, ING acquired about $540 million in annual premium from Zurich while the latter received around $80 million in annual “big ticket” corporate business. The cash component received by Zurich from ING has not been disclosed.

ING expects the deal will boost its total insurance premiums for next year by $460 million to a total of around $2.8 billion. Zurich expects to end the 2002 financial year with about $550 million in premiums. Claude Dussault, CEO of ING Canada, says the deal will boost ING’s share of the total Canadian property and casualty insurance market to 12%, a direct contender with CGU for the number-one ranking. ING and Zurich’s combined share of the Canadian p&c market is estimated at about 15%.

Zurich finished the 2000 financial year to end December with net written premiums of $590.1 million, of which personal lines accounted for about 75%. The company also saw its loss ratio soar by 15 percentage points year-on-year, producing a 28% increase in claims costs of $484.4 million. Zurich CEO Barry Gilway says the company will end the current financial year with about $460 million in commercial premiums.

Announcing the deal, Dussault and Gilway attended a joint press conference through which they referred to the transactions as a “strategic alliance” that is unique to the Canadian marketplace. Both emphasized that the deal was purely a “Canadian solution” and did not form part of broader global strategies of the parent financial services groups.

Zurich will retain its life business as well as its wholly-owned subsidiary World Travel Protection. Zurich’s commercial business will be focused on large commercial risks with international exposures, particularly Canadian businesses with U.S. interests. Dussault notes that ING is not withdrawing from the general commercial insurance marketplace, in fact, the deal will result in the company becoming Canada’s largest commercial underwriter. ING’s commercial premiums from the Canadian market will rise to around $800 million, he adds.

About 1,000 employees of Zurich’s 1,600-strong workforce will transfer to ING who will also take over the leases of Zurich properties. Approximately 640 employees involved with the commercial, life and travel operations will remain with Zurich. “We’re talking about ‘co-location’ of employees [between Zurich and ING], a one point of entry for customers and brokers alike,” comments Gilway. Although Zurich will sublease space and back-office support services from ING, the company will continue to maintain its own identity in the Canadian marketplace.

Gilway notes that, on a global level, the Zurich group has focused on forming strategic alliances with other financial services operators. In this respect, he adds, “the new dictum is ‘focus, focus, focus’, in applying capital efficiency”.

Dussault notes that there will not be any shared commissions on business brought in by the two companies. The deal will, however, bring together the broker distribution forces of both companies to a total of 2,800 brokers. Both companies will provide access to all products within the “alliance”, thereby providing brokers with a broader range of services – including Zurich’s U.S. expertise and presence.

Dussault believes that Zurich’s personal book of business can be made profitable through “scale”. While the acquisition of the business fits in with ING’s global strategy to grow financial services, he says that the increase in the company’s share of the p&c personal lines market will provide the necessary scale of size to compete successfully. “The scale we’re achieving will increase productivity and reduce costs in the mid to long-term, but I don’t expect short-term benefits.”

Gilway says that he is extremely happy with the results of the deal. The North American commercial insurance marketplace is already turning the corner for the better, with rates expected to rise on average by 20%-25% annually over the next two years. While the deal was not about “cost cutting”, Gilway emphasizes, it should enable Zurich to shave its expense ratio by about seven percentage points to a ratio in the mid-20s over the next couple of years. “I don’t envy Claude [ING] in terms of the competition in the personal lines market. This is not the case with the commercial market, particularly in providing U.S. and international access.”

Gilway notes that, “we [Zurich] haven’t been as successful as other players [in the Canadian market], and the business [personal lines] hasn’t been profitable”. Essentially, he adds, Zurich did not have adequate distribution capability. “Distribution is king.”

Chubb Canada also gained a small piece of the Zurich pie by acquiring the “solicitation rights” to the company’s “Preeminence” property book based on high net-worth clients. Chubb will take over the administration of the book, while Zurich will continue to process claims until existing covers expire.