View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Uncategorized
May 1, 2008updated 13 Apr 2017 9:00am

Europe’s life insurers are riding high

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

By Jeremy Woolfe

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 2005.




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 billion.

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 income.

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 CEA.

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 rules.

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

NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. The industry's most comprehensive news and information delivered every month.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy


Thank you for subscribing to Life Insurance International