The following article was written for the Canadian Journal of Life Insurance (a publication that was probably the best forum for information, debate and learning in the Canadian life insurance industry) at almost the midpoint of my tenure with Storebrand. It was a great company that did not survive the 1980’s in Canada. Swiss Re acquired its operations here in 1988. The history in Norway continues but a mere shadow of it glory days. My memories are mostly of a tremendous team of people who made Storebrand work in Canada and built a first class reputation far in excess of its size.
Canadian Journal of Life Insurance
September – October 1981
On May 4, 1981, the company which today is known as Storebrand could look back on 134 years of active life. The company was founded in Norway, and domiciled in Oslo, or rather Christiania, which was the name of the Norwegian capital at that time.
Christiania General Fire Insurance Company for Goods and Household effects has undergone several changes in the past 134 years to become what is known internationally as Storebrand International Reinsurance Company Limited. In 1971, the combined Storebrand group experienced a single year’s result which surpassed the growth of all years up until 1947, its centenary year. To appreciate the company’s present status, one must reflect on history.
Conditions in Norway in the early 1800s were described as hopeless and despondent. Norwegian independence occurred in 1814, but her true economic and commercial freedom failed to materialize until the fourth decade. Even the King of Norway voiced the fact that rarely in the annals of history had there been a country to which nature had been so unkind. Yet, out of this bleak beginning there came the entrepreneurs who strove to improve the economic conditions of Norway. New commercial ventures were launched and amongst their successes were several insurance companies.
Fire insurance on goods and effects was the single objective of Christiania General, but as demand grew in public sector, extension of the company’s operations was in order. In 1856, coverage was broadened to provide insurance protection for buildings. Management at the time felt the company name was too cumbersome and not reflective of the broadening scope of coverage being offered (and this before the day of the ‘ad men’). Popular sentiment proclaimed the name “Storebrand” (meaning he “big fire” insurance company in Norwegian). This name served to show the difference between Storebrand and the other newly formed “Lillebrand” or, as translated, “little fire” insurance company.
In the 19th century, Storebrand had its own fire brigade in Christiania. The choice of name, Storebrand, was a wise choice for the particular circumstances in Norway in the 1800s, but difficulty arose in the English-speaking countries where marketing of reinsurance expanded by the late 1900s.
It was no easy task to commence writing fire insurance under the prevailing circumstances in Norway at the time of Storebrand’s foundation. The experience of British and other foreign offices, plus the acquired seasoning of the building insurance companies, was a priceless bench-mark. However, the new companies were immediately faced with many Herculean tasks which have no equal in today’s environment.
A major conflagration totally destroyed several blocks in the center of Christiania in 1858. This great calamity produced damage to the estimated cost of over 4-million kroner – an unprecedented sum for any disaster of that period in Norwegian history. The five Norwegian insurance companies suffered financial strain as a result of the devastation. Storebrand, while enduring a 345% loss ratio, was relatively in good financial standing when one recalls that three other insurers were forced into liquidation. Lessons can be erudite from such an occurrence – the imperative need for reinsurance became very evident. Up until 1858, Storebrand, like so many other insurers, had virtually carried all of its gross liability for its own account.
Storebrand’s first obligatory fire insurance treaty was signed in 1862 with eth Phoenix Assurance Company of London, England. The treaty covered Storebrand’s excess Norwegian business. The reinsurance coverage was expanded 10 years later with a second treaty with Northern Insurance Company. Both these reinsuring companies have maintained their treaty connections with Storebrand for over 100 years (interrupted only by the Second World War period).
Norway was the only county in which Storebrand operated for its first twenty years of existence. This market was, by its size, very confined and it was evident to company management that they should expand into foreign market possibilities. Through market diversification Storebrand could spread very effectively its liability at a far more rapid rate than they could ever hope to accomplish within its domestic area. In 1868, a branch office was established in Sweden and direct business was commenced in other European countries. In a short span of time, further branches were established in England, Denmark, Finland and Germany. Early underwriting and sales results as a direct writer in most of these countries failed to do anything for Storebrand’s growth, and thus the concept of expansion through this method was abandoned.
Retrenchment within Norway became the theme for the next several years and activity outside the country came to a virtual standstill. By the end of the 19th century, international reinsurance was becoming more and more an obvious route for expansion into foreign markets, avoiding some of the pitfalls or earlier attempts at direct writing in those same markets. Christiania General and Vesta Central Office for Foreign Business was constituted in 1902 as a joint venture of Storebrand and Vesta Insurance Company of Bergen, Norway. This new company was given the mandate to solicit foreign fire reinsurance, an area of expertise in which both forming companies were proficient.
Vesta was the actual managing company for the first 18 years of operation. Storebrand during this period was not content to play the role of silent partner and thus slowly increased its own knowledge of the foreign reinsurance markets. Success in this area prompted Storebrand to simultaneously increase its activities under its own name. Storebrand offices, independent of the joint venture, were started in New York and London. On January 1, 1921 Storebrand formally became manager of the foreign business of the joint venture.
As is the case today, Storebrand’s operational style has been one of slow (thus somewhat unspectacular) and deliberate growth as an international reinsurer. By 1940, when the Second World War engulfed Norway, the foreign operations of the Storebrand Group had matured into a very major portion of the total – 75% of the group’s business was now in markets beyond Norway’s borders. Needless to say, the war’s impact was tremendous on an international reinsurer who found itself in a position of being amputated from most of its premium income. Management reacted quickly by changing the New York branch office into a U.S. Corporation, under the name of Christiania General Insurance Corporation of New York. Somewhat later during the war, a similar corporation was set up in London.
At the same time, the original joint foreign reinsurance venture with Vesta was abandoned through mutual agreement of all concerned parties. After 40 years a very cordial cooperative operation was ended on December 31, 1940. Both Storebrand and Vesta pursued independently their foreign reinsurance expansion from that point on.
After the war, the new management team, under the dynamic leadership of Mr. Per M. Hansson, looked to expand Storebrand’s international portfolio. The subsidiary in New York, Chrisiania, was progressing on schedule as a professional reinsurance company in the U.S. General insurance market. Meanwhile the opposite course of events was taking place in the U.K. Market place. Storebrand’s view of the U.K. Market, through its London office, after their original marketing thrust, presented a very limited potential profit picture. After a few years of operation, the London subsidiary was sold and Storebrand withdrew from that very particular type of reinsurance business.
A very close association started in 1952, as Storebrand helped with the formation of a reinsurance company in Mexico – Reaseguradora Patria. Some 29 years later, this reinsurance company has matured into a leading and profitable reinsurer in the Latin American world. Storebrand maintains to this day a very amicable and profitable relationship with this Mexican reinsurance carrier.
Elsewhere in the world, Storebrand continued on its path of well-planned expansion through both branch offices and subsidiary companies. Storebrand International Re of Australia is today a continuation of Storebrand’s licensed reinsurance branch in Sydney, which was originally established in 1962. Although only 12 years old, Storebrand (U.K.) has today a broad and well-spread participation In the London reinsurance market. After the initial problems of the 1950s the new Storebrand (U.K.) went after a market in which they had the expertise, namely, the writing of marine insurance business.
Alpha, Compania de Reaseguros ahs its base in Panama and was formed by Storebrand and local interests in 1976. This company has taken over the Storebrand Group’s Central and South American portfolio. At the end of 1977, Storebrand Ruck with headquarters in New Hamburg, got off the ground. With paid-up capital and surplus of D.M. 20 million plus management with local expertise and leadership, it has made inroads into the growing reinsurance needs of Germany and neighboring countries. A milestone was passed in 1972, when the foreign business accounted for about 50% of the group’s total business. By the end of 1979, Storebrand’s foreign subsidiaries had increased in importance to the Storebrand group – in excess of $50,000,000 of premium income was now in the subsidiaries.
STOREBRAND IN CANADA
Storebrand in Canada began when the company commenced its second hundred years in 1948. Christiania Almondelige Forsikrings – Akliesselskap Storebrand, better know in English as Storebrand Insurance Company Limited – appointed Verner R. Willemson of Toronto, as “Chief Agent” for Canada on the 16th of November, 1948. Storebrand was one of what were to be several foreign-based reinsurers to be represented by Mr. Willemson and Sterling Offices of Canada Limited. They were here in Canada in name and finances only. Sterling’s offices handled the local administration, sales of general reinsurance services and underwriting authority. The life reinsurance operation did not commence until much later. The relationship between Sterling Offices and Storebrand was to exist until 1975 (non-life) and 1977 (life). In 1975 the general reinsurance went under the umbrella of a newly-formed reinsurance brokerage – Universal Reinsurance Intermediaries Limited. U.R.I. By the end of 1980 was ranked number 1 (net premiums written) amongst reinsurance companies in Canada (Canadian Insurance, Statistics, April 1981 Annual Review). Since 1975 (non-life) and 1977 (life) Sidney Gordon, President of U.R.I has been Chief Agent in Canada for Storebrand International.
Active pursuit of life reinsurance in Canada commenced in 1967 with the formation of a life branch of Storebrand Insurance Company Limited. Securities of $213,000 were deposited with the Minister of Finance and Receiver General of Canada under the provisions of the Foreign Insurance Company Act. These original deposits were split between Government of Canada Bonds, Manitoba Hydro-Electric Board Bonds and Province of Newfoundland Sinking Fund Debentures. A local Life Manager was hired and the marketing of life reinsurance began in Canada.
The timing was perfect since the two main “professional” reinsurers in Canada were still under the control of one parent company and the third reinsurer was just starting to become a force to be reckoned with in the market place. The conditions could not have been better for an aggressive reinsurer, but unfortunately Storebrand approached the life market in a very modest fashion (contrasted with the dynamic impact of Munich Re and Victory).
Hindsight allows one to speculate, in a biased way, on the reasons for the ten-year performance 1967-77. The head office in Oslo was cautious during this period so far as life reinsurance was concerned. Thus they could be faulted for not appreciating the needs of the Canadian market. Local management was also “spreading’ itself too thinly – expanding into the U.S. Market place before fully servicing the Canadian Market. The combination of head office and branch management decisions meant Storebrand drifted through the years 1974-1977. Production fell in relation to insurance sales and Storebrand International Reinsurance Company’s reinsurance market share fell to less that 1% (based on new reinsurance sums reinsured).
From 1973 to 1976 the branch statements showed net losses totaling $528,295. These operating results plus the relative stagnation of Storebrand International Reinsurance Company’s life portfolio in Canada prompted the Head Office in Oslo to pursue a means of turning the situation around, in keeping with the Group’s international growth and prestige. By late 1976, an actuary was added to the Toronto staff and for the first time in 10 years, local actuarial talent would provide guidance. This was the start of Storebrand International Reinsurance Company’s rejuvenation program in Canada. Robert Smith, F.S.A., provided the impetus that led to a total change in Storebrand’s approach to the Canadian reinsurance market.
The latter part of the 1970s presented an ideal scenario for Storebrand to re-establish itself within the Canadian Market. The new management team in Toronto found itself in the midst of a period of rapid growth for reinsurance premiums in Canada. A look at the figures for the reinsurers (excluding companies who are direct writers in Canada as well as reinsurers) Shows reinsurance premiums doubled between the end of 1975 and the end of 1980[see accompanying table]. In force sums reinsured rose to almost ten billion dollars – an increase of 150%. The numbers for new business sums reinsured likewise increased by almost 190%.
Storebrand International Reinsurance Company took an aggressive stance in late 1977 and thereafter in its pricing of reinsurance both for facultative underwriting and actuarial quotations. A transfer of just over $1,000,000 was made from the Head Office in Oslo (supported by the two Danish partners) to the branch in Toronto. There was now no doubt that the company was in Canada to stay and encouragement to increase Storebrand’s prestige and market share was forthcoming in tangible terms.
In spite of the fact that Storebrand International had started to provide lower reinsurance costs to direct writing companies in late 1977 and thereafter, the early results were somewhat disappointing. Life insurance companies in Canada were, in 1977 through 1979 period, reluctant to change the status quo concerning their reinsurance outlets. Storebrand International, as well as other “new” reinsurers, were often providing the better (i.e. Lower) reinsurance costs but were losing at the final decision time to the existing reinsurer who was being asked after the fact to “match” or “beat” the lower cost. In fact, some 94% of all new sums reinsured in 1975 were going to the three larger reinsurers – Canadian Reassurance, Mercantile & General, and Munich Re & Victory. Comparable dominance of premiums (83%) and in force sums reinsured (93%) also existed at December 1975.
The early frustrations soon diminished, existing only in very isolated instances, as the “new” reinsurers including Storebrand International became acceptable alternatives in Canada to the big three. By offering an alternative reinsurer that was flexible and operated on lower expense margins, Storebrand International increased its market share of reinsurance premium income from 1.6% in 1975 to 7.5% in 1980. the impact on the three major reinsurers of the new competitiveness was a reduction to 70% of total reinsurance premiums, 82% of inforce sums reinsured and 80% of new sums reinsured.
The 1,000% increase in the number of cessions to be processed per year and the increase in facultative underwriting volume of the same magnitude, has meant a 50% increase in Storebrand International’s staff size over the last four years.
Storebrand International is now firmly entrenched in the Canadian life industry and has re-established itself as a viable alternative to the three major reinsurers. The market itself has changed and the decade of the ‘80s should offer life companies a competitive and varied source of reinsurance companies from which to choose.