Zurich Financial CEO survives another crisis

Zurich Financial Services CEO James Schiro knows how to handle a crisis.

Hit by the world's largest financial downturn since the 1930s, the world's fifth-largest insurance group by market capitalization remains strong, largely due to a conservative investment approach followed by Schiro and the company's other top managers.

On Nov 5, the company reported a $1.5 billion business operating profit for the third quarter of 2009, a 138 percent increase over the same period last year.

Net income for the quarter was $909 million, a jump of 490 percent over the third quarter of 2008.

It is not Schiro's first time reverses a tide drowning other corporations. As early as 2002, also under Schiro's leadership, Zurich successfully achieved a financial turnaround.

That was due to pursuing a strategy of profitable growth based on a well-diversified portfolio of life and general insurance businesses.

The key to combating a financial crisis, Schiro told China Business Weekly, is to keep the company highly disciplined and stay focused on a business's strengths.

"The idea is how you balance taking risks and creating opportunities. There is nothing wrong with taking risks, but you'd better understand the consequences of risks you are taking and, more importantly, the unintended consequences of risks you are taking," Schiro said.

"Once you understand all those outcomes, you can knowledegably undertake those risks. And risks can be opportunities," he said..

This is Zurich Financial Services' business approach in China - seeking niche markets where it is strong and also unique compared with other international and domestic players.

On Oct 27, Zurich Financial Services signed a letter of intent with the people's government of Pudong New Area to conduct cooperative research on marine insurance, talent training, and the development of shipping and finance.

The move is one of the Shanghai government's latest efforts in building the city into an international financial center and shipping hub.

As one of the larger global marine insurance providers, the company will set up Zurich International Shipping and Finance Research Center in Pudong, where the company will provide consulting services on risk management, bringing in experts and its expertise in marine insurance.

Long-term potential

"We see these markets providing Zurich with long-term potential and opportunities, and we are glad to be the first global insurer to sign such a deal with the government of Pudong New Area," Schiro said.

Currently, Zurich has a 20 percent stake in New China Life, making Zurich the second-largest shareholder of the country's fourth-largest life insurer.

Zurich received approval from regulators in 2006 to run a property and casualty business in Beijing, becoming the first foreign insurer to establish a general insurance branch in the capital.

When asked if Zurich will consider extending its business into pensions, enterprise annuities and asset management, Schiro said the company's business focus in China is only on life and general insurance.

Disciplined choices

"The biggest problem you have in China is what to choose, since the opportunities are enormous here. I have to discipline myself to say we can only do this one and that one," Schiro said.

One of the major criteria in scanning these choices is to see if the company has the right people capable of executing the idea.

"That's why we would like to focus on marine insurance in tapping the Shanghai market, as we have specific expertise and skills in marine insurance and we could be No 1 in this area," Schiro said.

North America is the largest contributor to the company's revenues and income, accounting for 52 percent last year. Asia-Pacific and the Middle East only accounted for 6 percent of Zurich's portfolio, with China's contribution at a low level.

"Our goal is to double our revenues and income in the medium term. To achieve the target, we have to get an increasing percentage from Asia and developing countries," Schiro said.

Zurich's expansion plan is similar to that of its peers, analysts said.

According to the consulting firm Accenture, more than three quarters of global insurers it surveyed rated international expansion as a critical or important driver of economic value.

Most insurers surveyed were planning further international growth next year, with a particular focus on China, India and South Korea.

"The main reasons for insurers to grow outside their home markets were to spread risk and balance business cycles, manage costs more efficiently and take advantage of attractive stock prices," said Sharon Khor, head of the insurance division for Accenture Greater China.

While mainly relying on organic growth, Zurich Financial Services also is considering merger and acquisition (M&A) opportunities.

The company, through its subsidiary Farmers Group, recently completed a deal to acquire 100 percent of AIG's US Personal Auto Group, positioning Farmers Exchanges as the third-largest traditional direct writer of insurance in the United States and the third-largest US personal lines insurer overall.

"There are lots of M&A opportunities, but we will not lose discipline as we evaluate those investment choices," Schiro said.

(China Daily 11/30/2009 page5)