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LONDON-Alternative financial insurance and reinsurance arrangements are just picking up steam and not dying on the vine as some experts think, according to one of the world's largest insurance groups.

If alternative solutions are defined as custom-designed products that better address customers' needs, "then that day is just coming," said Steven Gluckstern, a member of the executive board of Switzerland-based Zurich Insurance Group and chairman of subsidiary Zurich Reinsurance Centre Inc.

Within medium to large corporations, "there's a tremendous change in the sophistication of the buyer of risk protection products, and they are forcing providers of those products like the Zurich into much more tailor-made solutions," he said.

Clients no longer are interested in buying products that insurers have stocked on their shelves, said Mr. Gluckstern. "The insurers that offer plain vanilla products are going by the wayside. They can't survive."

"We are undergoing dramatic changes in our business," added Rolf Hueppi, Zurich's chairman and chief executive officer, when announcing the company's 1996 results at a press conference in London last month.

Ten years ago, no one talked about new ways of doing reinsurance business, said Mr. Hueppi. Today, however, Zurich is the world's leading underwriter of structured financial reinsurance, he said. Financial reinsurance, such as finite risk reinsurance, accounts for about half of Zurich's global reinsurance business.

"But it's not only that" which is changing, said Mr. Hueppi. "Banking and insurance now overlap dramatically."

In Europe-particularly in France, Belgium and Spain-about two-thirds of all new life insurance policies are now sold by banks.

Last week, Zurich announced it would be part of a core group of shareholders owning between 24% and 30% of the newly privatized Bank Handlowy, one of the largest banks in Poland. Zurich and Bank Handlowy also intend to jointly establish life and non-life insurance companies in Poland.

To keep up with such changes,

insurers need new skills, new facilities and new business, Mr. Hueppi said.

Zurich had an "exceptionally good year" in 1996, with net profits increasing 30.2% to 1.14 billion Swiss francs ($846.3 million), said Mr. Hueppi. This included results of Kemper Corp., which was acquired last January (BI, April 17, 1995). About 31% of Zurich's gross life and non-life premiums of 27.4 billion Swiss francs ($20.34 billion) originate in the United States.

Gross premiums for Zurich's reinsurance operations at year end totaled 3.6 billion Swiss francs ($2.67 billion), a 22.7% rise from 1995. This includes New York-based Zurich Reinsurance Centre Holdings Inc. and Centre Reinsurance (Bermuda) Ltd. in Bermuda, which Mr. Gluckstern founded. Zurich has offered to buy the outstanding publicly held shares of ZRC and hopes to close the deal in the autumn (BI, Jan. 20). A ZRC minority shareholder late last month challenged the Zurich offer as inadequately priced (BI, May 26).

Much of Zurich's stellar performance is due to gains in investment income. While the group's total underwriting loss increased nearly 30% to 4.9 billion Swiss francs ($3.64 billion), investment income rose 28% to 6.7 billion Swiss francs ($4.97 billion).

The group increased its underwriting reserves 37% to 101.6 billion Swiss francs ($75.43 billion), while it increased its capital and surplus 28% to 13.7 billion Swiss francs ($10.17 billion).

Reserves were increased not so much because U.S. environmental and health hazard liabilities are growing but because the insurer takes a conservative approach to reserving, said Mr. Hueppi. None of Zurich's U.S. operations has reported a claim from a tobacco manufacturer in light of the recent settlement talks with smokers and state attorneys general (BI, May 12; April 21), he added.

Meanwhile, the insurance group is investigating whether it wrote any life insurance policies for victims of the Holocaust, even though Zurich was one of the smallest players in the German life market before World War II. The sums of money involved are so small that they are immaterial, said Mr. Hueppi. However, "we are taking this topic very seriously, not just emotionally, but we are cooperating" with Swiss authorities who are looking into the matter.