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Zurich to drop cat bond

Global carrier Zurich will not renew its Lakeside Re cat bond when it matures at year-end, as it plans to shift the focus of its reinsurance buying away from regional covers and towards global protections.

The Lakeside Re bond provided $270mn of limit for US quake risk.

At present Zurich also buys a $650mn US wind programme at 1 January and a $930mn European all-perils protection in April, with a $295mn cover bought for the rest of the world at 1 July.

It also purchases a $500mn global cat umbrella at 1 April and a $150mn aggregate transaction at 1 January.

Although Zurich will expand its global umbrella programme as it reduces the regional covers, the change will still take a meaningful amount of premium out of the market as the cedant uses the same limit to cover multiple territories.

The carrier is also aiming to cut the panel of nearly 50 reinsurers that currently write its six cat treaties to around 30. In addition, it is understood that Zurich is set to push for multi-year cat cover for the first time.

Earlier this year, Zurich's global head of reinsurance Paul Horgan told sister publication Trading Risk that the company had encouraged its reinsurance partners to pass on the benefits of the cat bond market.

"I think we got the majority of the benefits of the ILS [insurance-linked securities] markets and rate decreases through our traditional partners," he said.

Across its reinsurance structures, Zurich sourced about 20 percent of its total limit from alternative markets, including via collateralised reinsurance, Horgan added.

He said the company used alternative cover typically on aggregate or high-layer excess-of-loss covers, but that the ILS market's focus on catastrophe and modelled perils limited its ability to support Zurich on a broader basis.

Zurich joins a number of global primary carriers that have been consolidating regional cat covers into global protections over the last few years, including American International Group, RSA and Ace.

In each case, premium spend has fallen to reflect the reduced limit purchased and the supposed diversification benefit to reinsurers from writing a global portfolio of risks.

Panel consolidation has been another theme of reinsurance buying over the last couple of years.

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