Swimming against the tide

Listening to market commentators of late, many would be hard pushed not to come to the conclusion that the UK, and more specifically London, is losing its grip as one of the world's pre-eminent insurance markets. From Lloyd's companies redomiciling in Bermuda to criticism that the government and the Financial Services Authority are doing their utmost to make the UK less attractive, now would not appear to be a good time to be running an insurance company business in the UK.

Swimming against this tide of cynicism, however, is Zurich Global Corporate UK managing director David Martin. After 18 months handling big-ticket multi-national business for the Swiss insurer, he reflects: "In managing a global business, one of the things we are seeing is a bigger role for the UK as part of the overall group, and that's a terrific local story, especially given the 'bad news' stories that are increasingly in the press. I'm not saying this reverses everything but it is interesting that the UK is playing a stronger role in ZGC."

Managing the UK arm of such a business - and one that was in its infancy at the time he joined - were among the main attractions that lured Mr Martin to Zurich last year. Previously, he had been chief executive of Aon UK's commercial business. "I was particularly attracted by the Zurich story, and the challenge of building a global business that was unique," he says.

Given the long-standing relationship between his new employer and previous one, Mr Martin's transition did not suffer any of the usual problems that can arise when senior staff seek new pastures. "For me, the fact that there was no animosity was a reflection that Aon and Zurich are pretty strong business partners. The usual gardening leave got reduced to five weeks - much to Mrs Martin's irritation," he adds, joking that his Australian wife's "vision of a grand tour didn't work out" as he was soon back working again.

ZGC was established as part of a restructure of the business that saw former UK general insurance CEO Geoff Riddell taking up the overall Global Corporate reins. It was effectively set up to bring together a host of different entities that had previously served the large corporate clients under the Zurich banner, into a more homogenous whole. In the UK, this meant Zurich London got consigned to the brand graveyard in January 2005 - three months before Mr Martin assumed his new role - with Global Corporate established in its place.

So has the challenge to create a single unified international business panned out? "We have worked pretty hard for 18 months turning ZGC into a global business, which is easy to say, not so easy to deliver," he says. "I knew the script before I signed up and it has clearly been part of my job to help the transition from being many businesses in many countries - as we were and most other insurance groups still are - to be one business in many countries."

As a combined entity, Mr Martin boasts ZGC is a "$8bn business", with only one profit and loss line of reporting, "and that is important".

He continues: "The real strength of it being one business with one P&L is that we can chose how much risk we want to retain based on a large and well-spread book of business."

This means that ZGC relies significantly less on reinsurance than its competitors, which in turn means it is less impacted by the cycle, he says. "We are not forced to pass on big reinsurance price hikes to our global customers, which gives them more stability and, given the sophistication of these companies - which tend to be very large and very complex - they need stability from the likes of us. It is a right pain swapping carriers every year because they have to reissue thousands of policies around the world, the reinsurance agreements need novating - it's horrible."

He claims that Zurich's risk retention in some countries is "absolutely huge" compared to what it would have been previously, "and maybe much greater than the local management would have accepted if left to their own devices".

"We need to have the culture of being one global business and get comfortable with the idea that the numbers in one country may look a bit unfortunate because it suffered a major loss," says Mr Martin. "In fact, in the UK in 2005, we had five very large losses, which were three more than the actuaries said we would have but by the time we looked at Global Corporate overall, the number of single large losses was one less than predicted across the whole portfolio. So we shouldn't get too upset that a lot fell in this department."

Rating environment

This brings Mr Martin onto the ongoing discussion about underwriting discipline and the current rating environment: "You find that larger customers tend to be a little more realistic about pricing. We are seeing - and I don't think it's too much to say this - a two-tier market at the moment. The larger customers will have some exposures in places where there are obvious natural catastrophe risks. The biggest example of this recently was the hurricanes last year but there are many places around the world where there are earthquakes, windstorms or floods, and pricing in global programmes has, therefore, been a little more stable."

He describes the current rate cutting in the UK and European domestic markets, however, as "a bit silly" because underwriters are "ignoring the possibility that there will be natural catastrophes there too".

Despite being the boss of one of the most significant hubs in the ZGC world - number two globally after the US and significantly ahead of the third - Mr Martin still relates to and meets with his counterparts in the UK business as part of the GI executive board, which is chaired by UK GI CEO Ian Stuart.

"I have a lot of common interests with those guys," he explains. "I also have a close relationship with (commercial and municipal MD) Guy Munnoch and (commercial and municipal market management director) Dave Smith in Zurich Commercial because, in practical terms, a lot of the global corporate customers have premises outside London and we work together to make sure that the Global Corporate products and services are being delivered to customers in Leeds, Birmingham or Glasgow, for example."

Research and development

One area currently exercising a significant amount of Mr Martin's and his team's time is developing products that meet ZGC clients' diverse and constantly changing needs. "The insurance industry has a pretty poor record at research and development, and none of us are denying it. At present, we are conducting detailed research in two or three areas that we believe will be of interest to a lot of our customers.

"The trick with new products is to make sure there will be a critical mass of customers interested in them because insurance is about spreading the losses of the few among the many. An insurance offering won't be sustainable if we can't establish a reasonable portfolio of exposures." This research and development includes looking at risks that corporate customers would like to insure and ones they would prefer to keep on their own balance sheet, especially given the constantly evolving exposures they face.

"The world is getting more complicated and customers keep coming across risks they had not previously considered. This means chief financial officers and risk managers have to make decisions about which risks, for a given spend, they are going to keep and which ones - more importantly - they are going to get rid of. In my experience, they are better off using their scarce risk transfer dollars on things that are not traditionally insurable."

Of course, what is uninsurable at the moment can change, depending on the results of research and development. "We are spending a lot of money investigating some of the leading edge exposures and figuring out how to provide an insurable proposition to our customers at a price they find reasonable. We are taking what we think is a plausible idea and road testing it with customers."

He adds: "If they have never previously insured something and we come along saying the premium is going to be X thousands or millions of pounds, customers have got to work our where they are going to get the budget for that from."

The changing face of UK industry also throws up its own challenges in terms of product development, which creates opportunities for Mr Martin and his team. "We have all read that the UK's traditional manufacturing base is in decline, with manufacturing moving to India, China or Eastern Europe. The UK is changing to a service-based industry so my challenge, as MD of ZGC, is to develop products and services that are of interest to that sector."

Not only is the nature of UK industry changing but international merger and acquisition activity means that former UK domiciled companies are being subsumed by larger multi-national organisations. Mr Martin lists British Airports Authority (bought by Ferrovial), British Oxygen (Linde), T&O (Dubai Courts World), BPB (Saint Gobain), Pilkington (Nippon Sheet Glass) and O2 (Telefonica) as six recent examples.

"These developments underline the need to be running our company globally. If I was still running an insurance firm in the UK, that's six customers that would now be lost to me because the insurance-buying decision would probably have be pushed off to, in two cases Spain, one case France, one Dubai, one Japan and one Germany.

"Yet because we have one P&L in Global Corporate, we are indifferent to where customers approach us. For traditional reasons, we have a talent pool available in the UK that is not necessarily available in all our markets globally. So we are making it easier for customers to approach us from, say, Germany or Spain.

"Notwithstanding the questions of whether manufacturing is disappearing offshore or whether we are losing British industry because it is being bought up by the rest of the world, we are seeing a bigger involvement from Zurich staff in the UK."

Glamorous end

It is also a story that is attracting foreign staff from other European centres to London to work with Mr Martin's 450-strong team - ZGC employs 1700 in total throughout Europe. "It's not difficult to keep staff as long as we meet their aspirations for personal growth," he says. "I suppose that working in the global corporate segment as we do puts us at the slightly more glamorous and sophisticated end of the industry."

So having had his feet under the ZGC desk for a year and a half, what does the next 18 months hold for Mr Martin and the entity's development? "We are a long way down the road in terms of thinking and understanding what we need to do," he responds. "We haven't delivered on everything we set out to do, that is a work in progress but I would hope that in 18 months' time we will be operating our model more effectively."

He adds: "The proof in the pudding will be whether we can convert that proposition into superior retention rates, how successful we are in bringing new products to market, how we demonstrate we are listening to customers and, thus, securing new business. We have made a lot of good progress in the past year or two but it is too early to declare victory. Ultimately, in fact, we will never declare victory because we have lot of excellent competitors and they are not going to sit around twiddling their thumbs."