The Spanish, Austrian, Irish, Portuguese, Greek and Belgian markets reviewed
The Spanish life market has seen its main line of business hit by uncertainties over tax changes. Endowments and savings policies, usually the core product in any insurance market, saw their market share in Spain fall from 69% in 1997 of life premium volumes to 54% in 1998. The premiums income for this business was down 15% in 1998.
In its analysis of the market, S&P also attribute the decline in part to the fact that lower investment yields have reduced the attractions of such savings products. It points to the tremendous growth being experienced on the unit-linked side, where premiums grew by over 170% in 1998, with its share of premium volumes moving up from 5% to 12% over one year.
Concerns about where state provision of retirement income is headed has boosted the sales of annuity contracts, which were up by 50% and now account fed for almost 30% of 1998 premiums.
Though the Spanish market is an overcrowded one, in S&P’s view, it is one were the players can feel that it is more open than others, in that the market is extremely fragmented when compared to others in Europe. In terms of market control, the top five groups handled 27% on premiums in 1997, while the ten largest life insurers had a combined market share of under 43%.
The scenario S&P sees unfolding is more consolidation to ease the congestion, pointing to the moves a number of the big international groups operating there are making to rationalise their subsidiaries’ activities there. Domestically, the market is a bancassurance-driven one, with a very heavy grip on the new business market, as some 60% of new premiums are handled through through this distribution channel. So any further rationalisation of the banking sector could impact on the insurance market.
S&P poses a question as to the capitalisation of the country’s life companies, commenting that, while they are “good to strong”, nonetheless they tend to be below average for European insurers. However, earnings are up to levels achieved elsewhere. The net effect of this is to constrain the investment stategy of the life company, as with such low coverage the capital base is exposed to movements in market values.
To what extent low capitalisation is dictating the asset strategy, cannot be commented on, but certainly fixed interest securities are the overwhelming choice of asset by insurers for their non-linked life business. In 1997, fixed interest accounted for 61% of assets, but the proportion appears to fluctuate from year to year, being 54% in 1996 and 64% in 1995. Equity investments were below 1% of assets. S&P points to the ‘other loans’, item, which ranged from 37% in 1996 to 24% in 1997, and says that the results may be distorted by a “lack of a satisfactory breakdown of ‘other loan’ assets in Spanish accounts”.
The lower level of capital may also have the effect of rendering Spanish insurers less liquid than insurers are in other markets, when assessed on the basis of their insurance liabilities.
Overall, there has to be a questionmark as to how ell positioned Spanish insurers are to the more aggressive European environment. As S&P puts it: they “can afford fewer mistakes” than those elsewhere. Further restructuring of the market looks to be high on the agenda.

The Austrian life market is less concentrated than others in Europe, says S&P, pointing out that the in 1997 the top five groups, Raiffseisen, Weiner Stadtische, Generali Leben, Allianz-Elementaar Leben and Sparkassen-Versicherung, account just for 47% of the market. But since Austria’s accession to the EU in 1995 and the subsequent adoption of the EC directives, the market has become increasingly open and more competitive. Bancassurance distribution, thanks to the strong growth of Raiffeisen in particular, is on the increase.
The life market has not taken off to the same extent as in other countries and the pattern of growth has been unstable. The rapid premiums increase of nearly 30% in 1996 was followed by a fall of over 15% in 1997 in premium volumes. The rise and fall back was due to policyholders buying single premium endowments under a 10-year term ahead of a hefty tax being imposed. Last year, says S&P, premium volumes were expected to be around 5 to 6%.
Currently, individual endowments account for nearly three quarters of the market, but with the arrival of favourable tax incentives for pensions insurance products, the 20% share in pensions and savings contracts is expected to grow. The group insurance is a small segment of the market, just over 2%. Only one of Austria’s life insurers is rated by S&P: Allianz-Elementar Leben, the fourth largest. This was awarded an AAA, the highest rating.
S&P says that the proportion of insurers’ assets invested in shares is reckoned to be around 10 to 12% and is set to develop further. Bonds and loans are the dominant, but the search for higher yields and the moves to unit-linked insurance will change this. Real estate appears to be in decline currently.

The Irish ‘Celtic Tiger’ economy with record growth rates in the mid to late 1990s has fuelled the growth of the Irish life industry, which saw net premium levels escalate by over 30% in 1996 and 1997. This was in strong contrast to earlier in the decade, when mis-selling scandals shrivelled market growth. But S&P points to the potential scandal coming from “churning” of policies, where policyholders are persuaded to stop existing life contracts to effect new ones to generate new commissions for unscrupulous salespeople. This may dampen growth for the market as a whole, as the Irish authorities investigate the industry, says S&P.
The top 10 Irish companies control around 70% of the market, according to S&P, with the former state-owned company Irish Life controlling in all around 20% of market, following its merger with Irish Permanent. This move, which meant an alliance with the country’s largest mortgage lender, resulted in a downgrade in the insurer’s S&P rating from AA– to A+. There has been some consolidation in the market, such as Bank of Ireland’s acquisition of New Ireland. The market players include UK-owned companies and Irish branches of UK groups, as well as a number of European insurers operating there without a local presence under EU single market rules.
Under favourable tax concessions, a number of insurance groups have set up in Ireland and the figures for life premiums written outside the country by insurers based there have grown extremely strongly in recent years up over 100% in 1996 and 80% in 1997. But S&P points out that with the moves to greater harmonisation of taxes in Europe, the fiscal advantages of operating from Ireland may be reduced in future.
The assets for the non-linked portion of the life market still show a high bias to fixed interest, accounting for over 60% of assets, while shares have only shown a slight tendency to increase their proportion, just under 26% in 1997 (23% in 1996).

Though Portugal is one of the smaller life markets in Europe, some 100 insurers are active there, says S&P, with just under half being non-domestic groups. This is all the more surprising as the top two domestic life companies Tranquilidade Vida and Occidental Vida are responsible for 55% of business and the top five groups handled 77% of life premium income in 1997.
There appears to have been a hiccup in the rapid growth that the market has been experiencing since the reprivatisation of the life industry in the early 1990s. A 45% growth figure for 1995, was followed in 1996 by 28%, largely driven by the development of the economy and rising personal incomes. But 1997, saw a less than 2% rise, which S&P says is attributed to the fall in bond yields. In 1998, premium growth seems to have bounced back, it adds. Retirement-based plans have increased with the worries about state old-age provision.
The S&P report goes into detail about the amazing development of bancassurance in Portugal, which is now the main distribution channel in the market, accounting for around three quarters, up from 30% in 1993. Tranquilidade, the country’s biggest life insurer, has 90% of its sales through Banco Espirito Santo.
In the face of such strong opposition, some of the larger European life groups operating in the market have made moves to consolidate their subsidiaries there, says S&P.
A combination of factors including rapid premium expansion and good investment returns, have put Portuguese insurers in a strong position of profitability, which will come under threat as competition increases and business slackens.
Though still at a relatively low level, the proportion of assets held as shares has tripled to 18% in 1997 from 1994. The real estate component of portfolios has halved , according to S&P figures. Fixed income assets, however, have increased over this period and accounted for practically 50% of investments. Mortgages and loans are negligible as an outlet for assets.

The Greek life market may be one of the smallest, but it is one of the most dynamic of the EU member country markets, showing a 75% premium volume rise over the three years to 1997. It is also one of the most open in reality to foreign groups, with major names such as Alico and Nationale Nederlanden ranking in the top five. A feature of the market is that the state-owned National Bank of Greece controls 20% through different subsidiaries.
The incursion from outside has helped product innovation, says S&P, though three quarters of the market comprises life savings products, with investment-linked policies accounting for 13% and group pensions management for 10%, on the basis of 1997 figures.

For one of Europe’s mature insurance markets, the Belgian life market continues to forge ahead, with premiums doubling in the five years to 1997, when premiums grew by 18% on an annual basis.
The sales momentum gathered pace in 1998 due to the well-signposted change in the guaranteed minimum interest rate associated with policies. As from the beginning of 1999, this was reduced to 3.25% from 4.5% – obviously a sales message that was not lost on the public. How sales will react this year is another question.
On a longer term perspective, the fact that life insurance products have tax advantages that other forms of savings vehicle do not have may account for the enduring appeal of insurance bonds to the Belgians. But the buying pattern has changed with the rise of unit-linked policies in popularity. These now account for 10% of life premium income, and S&P is of the view that the lowering of the guaranteed interest rate will help boost the unit-linked cause further.
The Belgian market divides into three distribution channels, with bancassurers sweeping to the fore. They may only hold 31% of total premium income in their grip, but of greater significance is the fact that 50% of new premiums are falling to them. In the case of the fast-developing unit-linked segment of the market, about 80% of this business is coming their way. Some Belgian insurers go the route of using their own tied agents and bank distribution, while others, particularly non-domestic groups, use broker distribution. Direct writing appears to have made little impact, says $&P.
Group-related premium income accounted for 38% of 1997 total life premium income. This proportion has been declining, which is not surprising given the low inflation and wage control environment that prevailed in Belgium in the preparation for the arrival of European monetary union. But as the pay controls ease and the interest in private retirement income increases, the insurance industry could be the beneficiaries of more activity by employers.
Insurers operating in Belgium have been in a quasi protected position, as their tax-advantaged products have sheltered them from competition from mutual funds and other products. This has helped earnings levels, though it may have helped the spread of bancassurance, as banks came into the life business to have the opportunity to deliver these products. Typically, as lower cost operations, they have caused a squeeze on margins, as S&P notes.
Insurance companies are generally well capitalised; their solvency margins are 3.5 times the EU minimum, S&P says. The only Belgian insurer to obtain a rating is AXA Belgium, which is rated AA–, ‘very strong’. Fennell Betson