IPE’s 2000 European life insurers report is produced in conjunction with the Comité Européen des Assurances (CEA), the body responsible for Europe’s insurers, and the ratings agency Standard & Poor’s. Figures published by the CEA and reproduced below show Europe’s insurance market grew 10% in 1999 despite repercussions from the Russian and Asian crisis. Comparisons with 1998 data reveal the varying fortunes of European life insurers last year.
On pages six to nine are the S&P rankings of Europe’s top 300 insurers in terms of both total premiums and assets under management. Also included is a case study of Allianz and its approach to fund management, as well as our survey of insurers and asset management. Other features include the role of captive insurers in employee benefits; attitudes towards DC and outsourcing, IPE’s survey of multinational pooling, and the importance of global custodians for Europe’s insurers. European insurance companies saw their invested assets grow to E3.94trn in 1999, according to figures published by the Comité Européen des Assurances (CEA), the Paris-based group that looks after the interests of European insurers. Its annual report, European insurance in figures 1999, says the Asian and Russian crisis hit the European economy but that it recovered during the second half of the year. Progress in European insurance is described as remarkable, with real growth of around 10%, as opposed to 4% in 1998. Life insurance drove the business, with a real increase of 16.2% in 1999, up from 6.7% the year before. Non-life business had a harder year and grew by a modest 2% in 1999. Heavy competition is affecting premiums and this is producing the disparity between real growth and the economic upturn of the European economy.
On average, EU countries saw overall premiums grow 16.9% in 1999, compared to premiums from life insurance up 17.8%. Despite this respectable figure, many of the core EU countries registered weaker growth, with Germany turning in a poor 3.2% and Belgium 12.6% for 1999. France posted a growth of only 10% but this was an improvement on 1998, when its insurance market contracted by 9.8%. The EU average compares favourably with a Euroland average of 10.5% and Sweden registered the highest growth (24.5%), followed by Spain on 24.2% and Italy on 21.3%.
In 1998, the French and Estonian markets were the only ones to witness a reduction in premiums. Both have since pulled themselves into the black, whereas Switzerland recorded a fall in premiums of 4.7% last year. Denmark was the only other market to shrink, with total premiums of E10.5bn registering a fall of 1.7%. Cyprus, one of the fledgling markets, topped the table with premiums up 116.8% in 1999, this on top of a doubling in 1998. According to the CEA country breakdown the surge is due to the soaring Cypriot stock exchange, which resulted in life companies increasing their premiums, particularly single premiums and unit-linked policies. Turkey remains a small market of E261m but grew by 96.9% in 1999.
In terms of life premiums, many of the core EU countries had a good year, with the UK up 20% in 1999, Italy 32.2%, Sweden 33.1% and Belgium 19.7%. Spain’s life premiums were up 35.6% thanks to the development of unit-linked contracts, which have grown by more than 200%. France, the only country whose life premiums fell in 1998, by 15.1%, clocked up growth of 14.4% – respectable, although 3.4 percentage points below the EU average and, according to the CEA, insufficient to restore volumes to the level at the beginning of 1998. The resurgence was helped by the lack of new changes in the tax regime and also by the strength of the stock market (60% of new contracts were ‘multi support’). Denmark, Switzerland and Latvia all saw falls in life premiums. In Switzerland the total was E20.3bn, a fall of 7.5% on 1998. New taxes made the Swiss market fall even more since anticipation of the announcement apparently produced a sharp rise in 1998. Danish totals fell due to the end of lump sum premiums.
Many of the smaller central European and Baltic companies had a weaker year in 1999, although topping 1998 would have been difficult. In 1998, life premiums in Estonia grew by 60.6%, in 1999 it was 1.6%. Hungary returned a respectable 21.6% growth last year in life premiums but this was down from 40.3% in 1998. The Czech Republic had a slightly disappointing year with total premium growth at 11.6% as opposed to 15% in 1998. According to the CEA county breakdown, this is due to the downturn in the life market caused by the introduction of new taxes.
As a share of overall premiums, the component for life insurance varies from country to country but in aggregate it accounts for a greater share than in 1998. On average, life insurance premiums in EU countries represented 61.9% of total premiums, as opposed to 56.2% the year before. This is the third consecutive year in which life insurance has grown as a percentage of overall premiums. In Luxembourg, they accounted for 87.1% of totals. In Finland the corresponding figure is 80%, the UK 72.4% and Sweden 72%. Germany, Italy and the Netherlands all fall below the EU average, with life premiums accounting for 46%, 57.7% and 58.8% respectively. All three though are a few percentage points higher than their 1998 totals.
Overall, the insurance industry had a good year with investments in CEA countries growing an average 17.1% compared with 7.5% in 1998. In aggregate the UK market is the largest, with insurers’ investments totalling E1,333bn. Germany comes in second with E819.4bn followed by France on E713.5bn. Other mid-size markets include the Netherlands on E242.3bn, Switzerland on E218bn and Italy on E203.3bn. Hungary’s insurance market is just getting off the ground, with total assets invested a touch over E1.16bn. Two years ago, the UK, Norway, Hungary and Cyprus saw overall investments shrink. In 1999 every country covered posted growth, with insurance investments in Cyprus growing 180.2%. Italy posted a growth of 31.4% in 1999 followed by Sweden and Finland who both increased investments by 28.8%. This is the second consecutive year Italy’s insurance sector has expanded by 31.4%
At the other end of the scale, Switzerland recorded single-figure growth of 6.7%. The UK, Netherlands, Germany and Austria all joined Switzerland with single-figure growth. In Austria, investments grew 7.4% due largely to the promotion of private pensions. According to the CEA figures, the continued sale of linked products is helping to boost the sector. Portugal also continued its impressive growth. In 1998 investments grew 22.1%, last year the figure was marginally lower at 17.8%. CEA says this is due to a high growth in turnover, intense legislative action and company mergers. (Premium volume also rose, courtesy of capitalisation products being sold by banks and financial companies.)
When you break down the totals, 80.8% of all CEA insurance investments are accounted for by life insurance. In Cyprus life investments account for 94.6% of the total followed by the Netherlands on 89% and the UK on 88.2%. Germany brings up the rear with 61.8% of its investments in life insurance. Life totals were much the same as in 1998, with the exception of Ireland whose life insurance market grew from 75.9% of the total to 86.4% in 1999. With regard to asset allocation, equities and fixed income remain the preferred investment vehicle and the EU average rose marginally for both. Equities were up one percentage point between 1998 and 1999 to 31.8% and fixed income rose 2.9 points to 39.1%. France was the most enthusiastic investor in fixed income, placing 72.5% of its insurance assets. Hungary and Italy follow close behind, with allocations of 68.6% and 67.4% respectively. At the other end of the spectrum are the UK and Netherlands with only 33.2% and 21.5% invested in fixed income.
In equities, UK insurers have the highest proportion invested, with a total of 50.5%, down from 51.4% in 1998. Evidence exists that Continental Europe is embracing the much-touted equity culture. In Germany and France the percentages invested in equities in 1999 were 22.3% and 18.6%, up from respective 1998 figures of 16.6% and 14.9%. Belgium, Denmark and Turkey also registered significant increases in equity investments. Real estate investment has lost some of its appeal in 1999 with the EU 15 countries investing 5% of insurance assets as opposed to 6.1% the year before. Italy almost halved its exposure to property, down from 10% in 1998 to 5.5% last year. Germany maintains its low allocation to fixed income with only 12.35%, instead opting for loans and mortgages in which it puts 57%, way over the EU average of 13.6%. Portugal has also opted for an almost outright switch to loans and mortgages from fixed income. Deposits account for only 1.6% and other investments 5.3%. IPE