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July 8, 2009updated 13 Apr 2017 8:56am

Irish insurers go from feast to famine

For many years, Ireland was the shining star in the European Union in terms of economic growth and one of worlds fastest-growing life insurance markets The global financial crisis brought this enviable situation to an abrupt end with dire consequences for life insurers being predicted by key industry players. The Republic of Irelands success in transforming itself from an economic backwater into the fastest growing economy in the European Union made it for many years the envy of other countries.

By LII editorial

For many years, Ireland was the shining star in the European Union in terms of economic growth and one of world’s fastest-growing life insurance markets. The global financial crisis brought this enviable situation to an abrupt end – with dire consequences for life insurers being predicted by key industry players.


The Republic of Ireland’s success in transforming itself from an economic backwater into the fastest growing economy in the European Union made it for many years the envy of other countries.

Accompanying economic success was a rapid increase in prosperity, which saw disposable incomes double between 1996 and 2006 and, greatly assisted by a residential property boom, Ireland became one of the wealthiest nations in the world. According to Bank of Ireland’s private banking subsidiary the average wealth per head in Ireland ended 2006 at €196,000 ($275,000), placing it second only to Japan.

Irish risk

There seemed no stopping the Irish economic miracle, with players such as the Bank of Ireland forecasting that personal disposable income would double again between 2006 and 2016. Unfortunately this picture of economic bliss was brought to an abrupt end by the onset of the global financial crisis.

With economic growth brought to a juddering halt, the impact of the crisis on the Irish insurance industry has been significant, as Brendan Murphy, former president of the Irish Insurance Federation (IIF), highlighted in his forward to the IIF’s 2008 annual report.

Describing 2008 as a “watershed year” for the Irish insurance industry Murphy wrote: “A year ago we were still talking in terms of riding out a credit crunch, whereas now we are dealing with a major global recession with aggravating local factors that has made the business environment extremely difficult for both insurers and their customers.”

Decimating new business

Murphy’s description of the situation was vividly illustrated by the impact on the Irish life industry’s new domestic risk business in 2008.

According to the IIF, new life and pensions business totalled €5.9 billion in 2008, down a massive 43.3 percent compared with the €10.4 billion reported in 2007. The major damage was done by single premium business which accounted for 91.6 percent of new business in 2007 and slumped by 47 percent in 2008 to €4.9 billion. The biggest fall was registered by life single premium business which fell by 65 percent to €1.929 billion.

Faring better, though still down by a sizeable 14 percent, was annual premium new business which totalled €1 billion in 2008. On an annual premium equivalent (APE) basis – all annual premiums plus 10 percent of single premiums – new business declined by 29 percent in 2008 to €1.5 billion.

Foreign risk premium income, a major factor in Ireland’s total life insurance industry, also suffered in 2008 though not to the same extent as domestic risk business.

Based on data from reinsurer Swiss Re new premium income – domestic risk and foreign risk business – generated by Ireland-based life insurance businesses in 2008 totalled €23.2 billion, down 40 percent compared with €38.6 billion in 2007.

Using the IIF’s domestic risk new business total of €4.89 billion in 2008 this indicates total foreign risk business of about €18.3 billion, down 11.7 percent compared with €20.7 billion reported in 2007 by the Irish Financial Services Regulatory Authority (IFSRA).

However, by far the bulk of foreign risk business is generated by Ireland-based subsidiaries of foreign insurers attracted to Ireland by Government initiatives such as the International Financial Services Centre in Dublin and a low 10 percent tax rate. IFSRA data shows that more than 90 percent of foreign risk business was attributable to foreign-controlled companies in 2007.

The slide in new business in Ireland in 2008 brought an end to a trend that had seen domestic risk business sustain a CAGR of 11.8 percent between 2000 and 2007. Together with growing foreign risk business this had lifted Ireland’s life insurance industry from 16th largest in 2000 to 11th largest in 2006 and 8th largest in 2007 based on data from Swiss Re.

Ireland’s life industry slid to 15th position in 2008, and it appears virtually inevitable that it will end 2009 even further down Swiss Re’s world ranking. This negative outlook came out clearly in a speech delivered by the IIF’s newly-elected president Brian Forrester at the organisation’s annual general meeting on 29 May. Forrester is MD of Bank of Ireland Life, Ireland’s second-largest life insurer.

Addressing the situation in Ireland, Forrester painted a bleak picture of new life and pensions business that has “effectively dried up” and asset values that have been slashed beyond all predictions.

“Margins are so tight and the prospects so bleak that our member companies’ very futures are at stake,” lamented Forrester.

He went on to reveal that in the first quarter of 2009 new business on an APE basis was down 46 percent compared with the first quarter of 2008. This slump was again led by single premium new business which Forrester said had more than halved in the first quarter of 2009.

An economy in crisis

While Ireland is not alone in suffering the impact of the global financial crisis the situation has been considerably exacerbated by certain aspects of its economic structure. Among these is Ireland’s position as a small open economy which over the past decade has placed heavy reliance on growing consumer affluence underpinned by rising property values to drive economic growth.

Reflecting the severity of the economic crisis that has beset the country, the Organisation for Economic Cooperation and Development (OECD) predicts that Ireland’s GDP will have declined by 14 percent from the peak in 2007 to the anticipated trough in 2010. The steepest fall in GDP is forecast for 2009 at -9.8 percent, compared with -2.3 percent in 2008.

This three-year decline will have followed years of strong GDP growth which in 2006 and 2007, for example, attained 5.7 percent and 6 percent, respectively.

Ireland’s severe economic recession is being reflected in a steep rise in unemployment, which stood at only 4.4 percent in 2006 and 4.6 percent in 2007 before rising to 6 percent in 2008. The OECD forecasts that unemployment will stand at 12.2 percent at the end of 2009 and 14.8 percent at the end of 2010. Unemployment stood at 11.9 percent at the end of June 2009, the highest level in 13 years.

The OECD’s unemployment forecast may even prove to be optimistic. Based on the average of forecasts by the Irish Department of Finance, the Ireland-based Economic & Social Research Institute and Irish stockbrokers, Davy & Goodbody unemployment will reach 13.4 percent by the end of 2009 and 16 percent by the end of 2010.

The economic crisis has also placed considerable demands on the Irish government to provide support for the country’s beleaguered banking industry at a time when financial flexibility is extremely constrained.

Indicative of the severity of the problem, in 2007 the government estimated that its tax receipts would be about €56 billion in 2009. By the second quarter of 2009 that estimate had been slashed by almost 40 percent to €34 billion. Summing up the economic situation in Ireland in a recent analysis, the OECD paid particular attention to what it termed “severe pressure on the public finances”. The OECD predicts that in 2010 economic activity in Ireland will begin recovering but, it stresses, only at a slow pace.

Insurers face increased burden

It is not only the devastating impact on new business and sombre economic growth prospects that is of serious concern to Ireland’s life insurance industry. So too is the government’s reaction to the crisis.


Clearly on a hunt for additional revenue the government announced in what was termed its Emergency Budget in April 2009 the introduction of a levy in the form of a stamp duty at the rate of 1 percent on premiums received by an insurer on or after 1 June 2009.

In his speech at the IIF’s annual general meeting Forrester emphasised the life industry’s concerns relating to the levy.

“We are extremely concerned at the impact on employment in the pensions and investment sector of the life assurance levy recently announced by government,” said Forrester. He stressed that the levy would have a significant distorting effect on the pensions and investment markets, as it does not apply to competing products available from other financial institutions.

“The projected income to the state of the levy has already been grossly overestimated given the fall off in new business, and does not take account of the likely further drop in sales following its introduction,” said Forrester.

The IIF is engaged in discussions with the Irish Department of Finance in an effort to have the 1 percent levy rescinded.

However, the life insurance industry’s protestations appear likely to receive little sympathy from a hard-pressed government, indicates the OECD’s verdict on economic remedial actions that need to be taken.

The OECD advised: “Substantial [state] spending cuts and increases in taxation are required in the coming years. Problems in the banking sector must be resolved at a reasonable cost. Competitiveness would be restored by lower wages and stronger competition.”

For now at least prospects for life insurers serving Ireland’s domestic market is, in general, far from promising. However, at least one domestic risk market participant, Swiss insurer Zurich Financial Services’ Zurich Life Ireland (ZLI), has proved that it is possible to beat the odds.

ZLI, formerly Eagle Star Life, reported exceptional results in the first quarter of 2009 by limiting its decline in new business to 18 percent on an APE basis to €40.2 million compared with €49 million in the first quarter of 2008.

In the process ZLI improved its new business margin from 20 percent to 23 percent and its market share from 9.8 percent to 14 percent.

Commenting ZLI’s CEO Michael Brennan said: “Our market leadership in pensions has been the major factor in our success but we have also increased our focus on protection over the last 12 months.

“Those people who have seen a sharp fall in their wealth as a result of the collapse in the property market, urgently need to safeguard their families by replacing that lost wealth with life insurance protection.”

Clearly all is not lost for Ireland’s life industry.

Income 2007

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