HSBC to slash costs by bringing risk in-house

HSBC expects to cut costs and generate hundreds of millions of dollars in revenue by taking more insurance risk on to its own books to capitalise on its scale and diversity.

Clive Bannister, group managing director of insurance at Britain's biggest bank, has decided to keep more risk within the group because HSBC's liabilities are well spread between countries and businesses. After reviewing the bank's operations, he concluded that HSBC was financially stronger than the reinsurance companies it was using to cover its risks.

HSBC is taking on more insurance risk from its businesses and customers. As part of the change in strategy, the bank is cutting radically the number of insurers it uses to supply products and reinsure risk.

"It is a change in the way we are thinking about our risk and the way we wish to engage with our preferred strategic partners," Mr Bannister said. "In the old days, you had two ways of getting rid of risk: you didn't write it or you reinsured it. We are now retaining more risk in two places."

So far, the bank has concentrated its efforts on getting its own businesses to insure themselves through its captive insurance company in Bermuda, which covers items such as crime, property, professional indemnity and medical insurance. Group premiums going through Bermuda have increased by about 40 per cent so that nearly half the bank's $300m (151m) of annual premiums are retained. The bank expects that figure to rise to about 90 per cent by the end of 2009, generating up to $40m in cost savings.

But HSBC sees the big-gest opportunity in turning its Dublin reinsurance company into a major income producer by taking a slice of revenue from reinsuring the policies the bank sells every year to its customers. Within three to five years, HSBC expects the strategy to boost its top line by hundreds of millions of dollars, he added.

Until recently, HSBC has been working with more than 100 insurers supplying policies for the group or for the bank to sell to its customers. Mr Bannister is reducing the number of suppliers it uses in a "strategic partner initiative".

The bank's partners for sales to customers will include AIG, Zurich and Aviva.