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European insurers garner e3.8trn in assets

CEA report highlights huge strengths and wide differences in the industry. By Fennell Betson
IPE’s1999 European Life Insurance Leaders report is again produced in association with Standard &Poor’s latest ratings of the life sector in Europe, to present our guide to the most important players within the marketplace. This year S&P has rated around 140 insurers in a series of separate reports covering the French, German and UK markets, as well as one on the rest of Europe. A listing of the companies rated and details of their 1997 figures are given in our individual market reports. We also rank the top 300 European life insurers on the S&P databases, by premiums and by assets under management.
This year’s supplement has been extended to include figures from the Comité Européen des Assurances, the body that represents national insurance associations from 29 countries. These figure show the enormous importance of the European industry as a gatherer of assets. The report concludes with a series of features looking at a range of issues of concern to insurers and their marketplace.
European insurance companies saw their invested assets grow to E3,794bn in 1998, according figures produced by the Paris- based Comité Européen des Assurances, which looks after the interests of insurance companies in Europe, ranging from Estonia to Turkey.
The 1998 figures only cover 16 of the 29 member countries of the CEA, but they show that for these countries investments grew by 7.5% overall in 1998, with the strongest growth in assets recorded in Italy (up 31%), Portugal 22% and Belgium 21%.
Some 80% of the industry’s assets are in respect of life insurance business, with the proportion varying from country to country. The UK’s proportion of life assets at 88.3%, is just ahead of both Denmark’s 87.7% and the Netherlands’ 87.5%. Countries at the lower end of the spectrum include Hungary at 61.6% and Germany at 61.7%. Figures for CEA members in aggregate have been creeping up, with life assets accounting for 78.4% in 1996 and 79.6% in 1997. This trend is reflected in the fact that life assets grew 8.2% in 1998, outpacing the overall asset growth rate.
Similarly on the life premium side, the overall growth rate in 1998 was a respectable 5.9% for CEA member countries. But on the breakdown between Euro countries and the EU as a whole, there is a considerable difference as the EU rate held up at 5.6%, while in Euroland life premiums only grew by 3.8%. Germany and France had a less than buoyant time with the French premiums actually declining by over 15%, while in Germany, the 4% achieved was pretty miserable.
Even the strong life premium growth in places such as Italy (40%) and Belgium (28%) was not able to offset the slump in the major Euroland markets, these figures certainly account for the massive jump in insurers’ assets for life business. The Belgian industry saw its assets grow more strongly than premiums, with a 29% rise. The Portuguese story is much the same, a healthy 28% rise in both premiums and assets.
The UK industry had a small fall (–0.1%) in life assets despite seeing premiums rise 15.5%, while the French industry saw its assets take a sizeable upward shift, up nearly 16%, despite an equivalent drop in life premiums.
The most dynamic premium performance is happening in the newer European economies. Estonia saw premium volumes on the life side rocket by over 60% last year, while neighbouring Latvia clocked up a respectable 28%. Hungary (40%), Slovakia (34%) Poland (31%) are pulling in the premiums, as if there was no yesterday in insurance terms.
The king-sized players in investment terms are the UK whose life industry controls assets of over E1.2trn at the end of 1999, putting it well ahead of Germany with E751bn and France with E568bn. The huge volume of pensions business boosts the British figures as does the inclusion of the assets of insurers’ overseas life operations, as the CEA points out.
The above are the preliminary figures produced by the CEA for 1998, and more detailed figures particularly on the investment side are due later this year. For its report ‘European Insurance in Figures 1997’, it points out that for a number of countries, particular France and Germany, the asset figures will be understated as these countries report on ‘acquisition value’ rather than market value.
While the premium income figures in France and the UK are similar in volume terms, the difference in assets controlled is considerable. This is due to the major structural differences between the portfolios of companies in the two countries. As CEA notes, French insurers carry less long-term risks that their UK counterparts.
The more detailed breakdown of the allocation of portfolios is only available for 1996 and we show these figures, which refer to both life and non life assets, below. The CEA points to the trends that are highlighted here and there is no reason to think that the direction is which asset allocation has been moving will change, if anything the pace may have accelerated. Fixed interest securities were on downward trend and it is likely that this has persisted at least into 1998. In 1996, fixed income and other debt securities amounted to 36.5% of assets, though still the largest single asset category. By contrast, shares appeared to be on an inexorable upward trajectory, rising from 22.8% in 1994, to 26.1% in 1995 and 29.5% in 1996. An increase of more than three points each year , as CEA points out. The categories hit by these shifts included loans, which saw their proportion slump from 21% to 15.9% in just two years and property looked like continuing its slide from portfolios down to 6.4% in 1996, from 8.1% two years earlier. These are seismic shifts in portfolios, indicating the rethinking in the insurance industry.
The importance of insurers in stock market activity is highlighted by the CEA, which shows for a range 18 countries, their insurers holding of shares was equivalent to over 20% of stockmarket capitalisation at the beginning of 1997. If insurers’ participation in affiliates and other similar investments are included the proportion rose to nearly 24%. For the UK holdings of shares in early 1997 was nearly 36%, while in Ireland it was 37%. Danish insurers’ shares exposure was equivalent to 45% of local stockmarket capitalisation, while Italian insurers amounted to 46%, perhaps reflecting the thinness of the local stockmarket back in early 1997.
The UK’s life sector is the largest in Europe and according to the CEA’s country by country review of 1998 trends, the British life business increased in respect of pension annuities and single premium investment bonds business, though personal pension business was flat. However, pension fund business managed by insurers increased significantly.
By contrast, France life business had a dismal 1998 with a drop in premiums of over 15%, due to new fiscal treatment. The result was that premium volumes were lower than those recorded for 1996. The tax modifications were the dominant feature of 1998, although they had been introduced in 1997, the effect was to encourage contributions to be made before the end of 1997, rather than in 1998, says the CEA report.
For Swiss life insurers the introduction of a new tax did not occur until April last and premium income rose by over 10% for direct life business. But insurers there are very preoccupied with the guaranteed interest rates on individual and group contracts. According to the CEA, these are posing serious problems, as the rates are currently fixed at at too high a level compared with interest rates generally.
In Belgium, customers were one jump ahead of the industry on the guaranteed rates question. Premiums for individual life contracts premium income growing by over 22% in 1998 in anticipation of the fall in the maximum guaranteed technical interest rate, which was announced by most insurers for 1999. this is due to come down to 3.25% from 4.5%.
Austria reports a healthy growth in life premiums of nearly 10% in 1998, due in part, says the CEA, to the increasing recognition of the role life insurance can play as an instrument for old age provision and in Italy the life insurance industry’s 1998 premiums overtook the non-life sector in volume terms for the first time, the reason being the growth in unit and index-linked contracts.
Spanish life insurance growth was under 5% last year, with growth being dampened down by regulatory and tax changes. The new personal income tax rules which came into force in December last year are expected to be positive for the life industry, as it provides benefits the longer term contracts. In neighbouring Portugal life premium growth jumped ahead by 25% last year, helped by unit-linked and capitalisation policies demand. “One of the products which contributed most to the recent expansion in activities was the PER (pensions savings plan), which is continuing to develop at a fairly positive rate,” says CEA.

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