Can Zurich rebound from senior brain drain as Sharma and Martin join departee list?

Last month's announcement that its UK general insurance CEO, Vibhu Sharma, was leaving following the decision to bring its life and non-life businesses together, has led many to ask the question: what is going on at Zurich?

One senior source connected to the company said the previous team ran the business “in a steady fashion” for 10 years. However, there was a subsequent change in direction that didn’t necessarily work out.

“Every business restructures, but it’s not what I would have done,” the source added. “I think it’s had a bit of a hiccup.

“Zurich’s a fantastic business and it’s a very strong business globally – with solid roots in the UK. So it’s had a bit of a blip. It’s nothing that can’t be fixed, and there are still some great people there. Yes there’s been a few departures, but there are still some very respected people there.

“They’ve got to decide what they want to do with personal lines, whether to be a mass market player or a specialist. They just need to settle on a course of action and follow it rather than keep changing their direction. I hope they get back on track.”

The announcement of Sharma's departure follows several months' worth of headlines about other senior staff leaving the company, including most recently interim personal lines managing director Kay Martin, her predecessor Patrick Cohen and Nicola Thomson, head of personal lines broker.

A second source close to Zurich said: “Some of the departures are just coincidence, but some are not. You have a bit of a generational thing. It’s like a football team that’s been great, and then it loses some of its key players. The truth of it is, however well you can plan your succession, it’s always going to be a bit of a shock when you lose three or four of your star players.

"At that time, it coincided with pretty bad results, and yet another intense focus in Zurich, not for the first time, on profitability and control of expenses. So there's an intense focus on jobs, expenses, underwriting disciplines, and of course you've got a new leadership being forced to make substantial job reductions, oversee a restructure and ride out the storm. It's a changing of the guard really, but it's a changing of the guard in very difficult circumstances."

Change of focus
The second source said Zurich's focus on trying to grow its SME book took the business in a different direction to what many staff wanted. “It did seem at one stage that they were losing key people every other week,” he said. “Some people weren’t that bothered about SME businesses. They were a lot more bothered with the mid-market book, the higher up the food chain-type stuff.

“So some said: ‘we don’t like the way this is being done, this isn’t the business we wanted to be, and we don’t want to be a mass market business.’ So it was not just the senior staff that were changing but the direction and the focus of the business too.”

Georgina Farrell, head of UK human resources for Zurich, said: “People do move on in their careers and at Zurich we encourage people to develop and progress. For example, over the last five years we have seen around twice as many internal promotions than external appointments at a senior level.

“Also, the average level of service within our senior management is around 14 years – which provides a really strong foundation of knowledge for our organisation and means that there is stability in terms of leadership and expertise.

“But, our keenness to encourage progression does mean that, inevitably, some people move on to new roles outside the organisation. What is great is that in the UK we’ve been able to recruit into our senior vacancies from our own great pool of talent and expertise.”

Departures and arrivals
The announcement of Sharma's departure from the business was also accompanied by the appointment of Conor Brennan, the CEO of Zurich Ireland's GI business, as UK GI CEO.

"He'll go down very well both in the market and internally," one source said. "In the last 12 months Zurich has drifted away from the market a little bit, and Conor is someone who will definitely help them and move them in the right direction."

A second source connected with Zurich said Brennan presented a different approach to Sharma.

“He is a market facing, practical guy,” the source said. “He gets business. He understands trading. Vibhu comes from an accountancy actuarial background. He is the very opposite of Conor; Conor is a market-facing trader. He has real charisma and presence. He will rally the troops.”

In the lead up to September last year, analysts were optimistic about the potential takeover of RSA by the Swiss insurance giant. Hailed as a 'good fit' for the two companies by observers, it wasn't until the eleventh hour that Zurich pulled the £5.6bn deal in a move that took the markets by surprise and saw RSA's share price plummet by 21.9%.

RSA revealed that Zurich had terminated the takeover discussions as a result of a decline in the performance of its general insurance business. A series of catastrophic claims and other large one-off losses throughout 2015 had hit the company hard, resulting in a 79% drop in third quarter profits. The August Tianjin port explosions alone saw £207.8m in losses for Zurich.

The company stated: "In addition to claims relating to the Tianjin port explosions, Zurich now expects that weaker than expected profitability in the general insurance business in the first half of 2015 will continue in the third quarter." A little over a fortnight later, Zurich revealed that it would be cutting 440 jobs from its UK general insurance business to reduce operating costs.

Commenting on the results at the time, Sharma said: "Three months ago we were in the middle of a perfect storm of a really difficult market and greater than normal large losses. We are still seeing large losses above our expectations and have experienced about 18 months' worth in the first nine months of this year."

Plunge in share price
Zurich's share prices plunged by a further 8% in January as the damages caused by December's Storm Desmond became clear. The company saw fourth quarter losses of £320m, compared to a profit of around £650m a year earlier.

The following month saw Zurich again considering shrinking the company in light of the poor results. "We prided ourselves on that reputation for underwriting excellence, but we didn't understand our exposure to potential losses," chief risk officer Cecilia Reyes said. "We have already taken actions to improve that."

And in June, Zurich announced the massive restructure bringing together the company's life and non-life businesses. "The simplified structure will also allow us to become more efficient and support the implementation of our communicated cost reduction programmes," said new global CEO Mario Greco. "There will be redundancies, for sure."

So has there been a brain drain at Zurich; and what do brokers think of these changes?

"If you look at things like personal lines, it's square pegs being fit in round holes," the second Zurich source said. "You'll be aware of Patrick Cohen I'm sure, coming and going. How on Earth did he get that job? Why was he parachuted in [from Swizerland, where he was global head of customer, distribution and marketing], in an environment that Zurich has traditionally found difficult to get right?

"What credibility or credentials did he have to lead that business? He was certainly a surprise appointment. You had a group of people who know what they're doing, being led by somebody who really needed to be brought up to speed. Maybe some people looked around and thought ‘really?'"

Despite this period of upheaval however, brokers remain confident in the strengths of their relationships with Zurich.

Andy Fairchild, CEO of Broker Network, said: “We’ve got a long-standing relationship with Zurich, and a strongly trading Zurich with quality regional broker relationships is good for us and good for our members.”

Right people, right places
Simon Taylor, managing director of Reich Insurance, added: “The changes at Zurich have had no impact on our relationship with them at all. We have a superb relationship with Zurich.”

Brokerbility chairman Ashwin Mistry concluded: “As long as there is no immediate reaction on response rates to quote requests, then we don’t particularly have a problem from a trading perspective. From a strategic perspective, there’s an awful lot of talent that’s moving around or leaving the sector.”

“Zurich will get better, by the way,” concluded the second source. “Zurich is starting to put the right people in the right places. Give it a chance. With Conor Brennan I would predict the rise and rise of Zurich again.

“Its dark days are behind them. It’s had a really tough year, but Zurich is back and now absolutely focused on the target markets it wants to be in and exit markets it doesn’t.”