A picture of near-perfect market conditions
emerges from the annual report of the Comité Européen des
Assurances. In particular, the picture is characterised by life
business premium income in Europe recording its third year of
robust growth in 2006 to reach a record 659 billion.
Jeremy Woolfe reports from Brussels.

In its 2006-2007 annual report published in
September, the Brussels-based European insurance industry body, the
Comité Européen des Assurances (CEA), painted a picture of an
economic landscape of buoyant prosperity, in no small way reflected
in robust performance from the life insurance industry. A booming
stock market and a growing economy supported the development of the
insurance sector last year, noted the CEA.

According to the CEA, total premium income in Europe for life
insurance business in 2006 grew by 4.4 percent compared with 2005
to reach a record €659 billion ($931 billion). Total assets managed
by life insurers stood at €5.67 trillion at the end of 2006, an
increase of 7.8 percent compared with 2005. The greatest share of
assets was in the UK, which accounted for €1.76 trillion or 29.2
percent of the total. The UK was followed by France (21.3 percent),
Germany (12.3 percent) and Italy (7.3 percent).

The CEA, which co-ordinates the interests of the sector in the 27
European Union member states, plus Iceland, Liechtenstein, Norway,
Switzerland, Croatia and Turkey, represents undertakings that
account for about 94 percent of total European life and general
insurance premium income.

Though non-life insurance outperformed life insurance in 2006 –
reflecting a growth in premium income of 5.3 percent to €406
billion – this was due in large part to the recent privatisation of
the Netherlands’ health system, noted the CEA. In reality, life
insurance continued to be the main driver of growth in the overall
insurance industry, stressed the industry body. According to the
CEA, if the influence of the Netherlands’ health system
privatisation is excluded, growth in general insurance premium
income in 2006 was only 1 percent, down from 1.7 percent in


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Growth achieved by life insurers in 2006 followed growth rates of
6.2 percent in 2004 and 12.4 percent in 2005, and marked a
continuation of a recovery since the three difficult years that
followed in the wake of global equity market weakness that began in
2000. Between 2000 and 2003, life insurance premium income fell by
a total of 5.8 percent.

A feature of the European life insurance market is that it was
characterised by highly impressive growth in Eastern European
countries, where in 2006, the CEA said, premium income growth
averaged 26 percent. Indeed, of the top ten performing life
insurance markets in 2006, five were in Eastern Europe.
Particularly impressive were Lithuania and Latvia, where growth
rates of 56.5 percent and 46.4 percent, respectively, were
recorded, though off very low bases. Of the larger Eastern European
markets where annual premium income now exceeds €1 billion, Hungary
and Poland excelled, recording growth rates of 39.3 percent and
37.7 percent, respectively.

Growth in the mature Western European markets in 2006 was solid
rather than spectacular, averaging 4.3 percent. However, there were
wide variations in growth rates. Top performer was France where a
17 percent increase in premium income to €141.2 billion ranked it
as the ninth best performing market in Europe.

Other particularly strong markets were the UK, where premium income
lifted 9.8 percent to €183.4 billion; Ireland, which recorded a
12.9 percent increase to €11 billion; and Denmark, which recorded a
12.2 percent increase to €12.3 billion.

Some markets failed to impress in 2006. These included Germany,
where premium income increased 2.8 percent to €74.7 billion; Italy,
where premium income declined 5.6 percent to €69.4 billion; and
Belgium, where premium income declined 18 percent to €20.6

New opportunities in pension insurance

A significant driver of the European life insurance industry’s
growth has been the emergence of new opportunities in pension
insurance, observed the CEA. The CEA explained that in some
markets, especially France, Sweden and Slovenia, this trend is
marked by the development of the occupational pensions sector. In
other markets, individual pensions appear to be the preferred
channel for pension products, while in several Eastern European
countries creation of mandatory pension schemes managed by insurers
has driven strong premium income growth.

According to the CEA, estimates show that across Europe total
pension contributions from public, occupational and individual
pensions recorded by insurers amounted to €251 billion, which is
equivalent to 20.6 percent of the total pension market premium

The CEA stressed that the role of insurers in the provision of
pensions varies widely. On insurers’ balance sheets this role is
reflected by the share of pension provision in the total life
insurance provision. While this share is above 60 percent in
countries such as Finland, Germany and the UK, it is below 10
percent in France, Italy and Poland. The CEA noted that the low
rates in France and Italy do not indicate a low development of
pension schemes managed by insurers, but rather the higher
proportion of the life business related to other saving products
such as universal life insurance.

In addition to premium income derived from pension products, the
CEA noted, in some markets unit-linked products have played an
important role in driving premium income growth. The success of
unit-linked products, said the CEA, has been supported by the rise
of stock markets over the past four years and by the good returns
offered by life investment products. New product development has
also contributed to the success of life insurers. In particular,
unit-linked products combined with options to allow for a capital
guarantee have proven attractive to investors.



Market concentration

The European life insurance market is also characterised by a
generally continuing increase in market concentration. The CEA
explained that one commonly used concentration ratio is the top
five group concentration ratio, or CR5, which consists of the
market share, as a percentage, of the five largest insurance groups
in the industry in a specified country. In the life sector, the
average CR5 of the 33 CEA member countries was 55.8 percent in
2005, up from 45.9 percent in 1995. This increase, said the CEA,
was driven mainly by the merger and acquisition process that has
been observed during the past few years and by the need for
companies to reach a critical size in a globalising economy.

However, the CEA stressed that the CR5 has reflected a decreasing
trend in the Eastern European countries since the mid-1990s. The
CEA said this trend is explained by high economic growth rates and
liberalisation of these markets, which has opened them up to
domestic and other European competitors.

The less concentrated markets are the larger ones such as Germany,
Spain, the UK and France, where CR5s are between 40 percent and 55
percent; the highest concentration ratios (more than 85 percent)
are witnessed in the Baltic and Scandinavian countries, which are
smaller markets. The CEA said the correlation between the size of
the market and its level of concentration is explained by the fixed
size that is inherent in every economic activity and also that
insurers need to have a portfolio of a minimal size in order to
spread their risk efficiently. “Therefore, smaller markets can only
be characterised by higher concentration ratios,” said the

The CEA’s data also provided useful insight into the success
achieved by life insurers in their drive to diversify
internationally. Among the large insurers, ING Group has been the
most successful in its diversification strategy and in 2005 derived
only 21 percent of total revenue of €51.3 billion from its European
operations. North America contributed 51 percent, Asia-Pacific 24
percent and other regions 4 percent.

Also highly geographically diversified was Prudential, which in
2005 derived 39 percent of total revenue of €61.3 billion from
European operations, 11.4 percent from North America and 49.4
percent from Asia Pacific. AEGON also reflected solid
diversification, 45 percent of total revenue of €40 billion being
derived from Europe, 53 percent from North America and 2 percent
from Asia-Pacific.

Major insures at the least diversified end of the spectrum were
Ergo, Fortis and Swiss Life, which derived 100 percent of their
revenue in Europe. Close behind were Legal & General (99
percent of revenue from Europe), Crédit Agricole (98 percent),
Assicurazioni Generali (94 percent) and Aviva (93 percent). In the
middle category were Allianz (74 percent), Talanx (71 percent) and
Axa (66 percent).






Regulatory evolution

The CEA also focused attention on the complex evolution of the
European insurance industry’s regulatory framework. “Insurance is
central to the European Commission’s drive to complete an
integrated market for financial services,” stressed the CEA’s
president, Gérard de La Martinière, and director general Michaela
Koller, in their joint forward to the CEA’s annual report.

They continued that a single European insurance market requires a
common framework allowing insurers to establish and provide
services freely across the EU. “Such a level playing field is still
some way off despite the proven appetite of the big players for
pan-European coverage,” said de La Martinière and Koller.

However, they added that a number of ambitious European Commission
projects are addressing the challenge of market integration and
will have an impact at the company, retail and supervisory levels.
Key among these projects are Solvency II which will revolutionise
insurers’ capital requirements, revision of international
accounting standards for insurance contracts and the Green Paper on
Retail Financial Services which will launch a public consultation
regarding future EU policy on harmonising consumer protection

“These [projects] will have major ramifications for the sector and
for the wider European economy,” said de La Martinière and