This issue of Global Reinsurance looks at the state of play in the European re/insurance sector. After several years of softening market conditions, it appears the tide has turned, and European players are trying to make the most of the opportunities ahead.
In a recent report, consultancy Andersen noted the huge mergers and acquisitions activity that has taken place in Europe over the past two years, valued at more than $350bn. Valerie Denney takes a look at how these changes have delineated the current shape of the European market, commenting, “Barely a month goes by without a deal of headline proportions being negotiated or taking place.”
Cross-border expansion, diversified distribution channels and demands from shareholders are fuelling primary insurers' growth plans, she states, while downward pressure on costs is an ever-important factor. In addition, diversification across classes of business is helping stoke the flames of M&A for primaries.
The re/insurance sector, although subject to similar pressures, is in addition feeling the pinch of consolidation, as ever-growing clients demand larger suppliers. Nevertheless, the Andersen report notes that the European re/insurance sector now has considerable power it can wield in shaping the financial services landscape. “Until recently, insurers' profile in the financial services industry was distinctly lower than other sectors,” it notes. “The business was seen as unexciting and conservative, its workings not well understood and its capital strength and role in the corporate and global economies not appreciated ....
It was not until Allianz intervened in the merger discussions between Dresdner and Deutsche that market analysts began to understand that European insurers were able to drive change within the industry.” That gives the re/insurance community considerable responsibility in shaping the European financial services industry over the next few years, though, as Andersen notes, “time is not on their side,” in this ever-changing and difficult market.
And periods of difficulty inevitably lead to failures. According to Neil Golding and Robert McGregor of Freshfields Bruckhaus Deringer, at least 48 re/insurance companies and six Lloyd's syndicates stopped writing business last year, and the first two months of this year saw 19 insurers cease underwriting. Overshadowing these is the very recent demise of Independent Insurance, until just a few weeks ago a sparkling jewel in the UK insurance market crown. Independent's rapid fall from grace into insolvency has focussed many minds on managing the run-off from defunct re/insurers, and that concentration has been emphasised by a recent estimate from Tillinghast-Towers Perrin that US asbestos exposures could cost the international re/insurance industry in excess of $200bn. Messrs Golding and McGregor outline the strategies open to UK re/insurers when they get into financial trouble.
Whether claims will be a future problem, particularly in the motor market, is an issue raised in Monika Gruber's explanation of Vision Zero, a new initiative set up by the Swedish government which aims to eliminate fatal road accidents in the country. With rising bodily injury claims a constant factor in the European motor insurance market, the Swedish move could make serious inroads into claims costs in the country. And if the initiative proves enticing to other European nations, the motor market could see claims slashed – and premiums too.
Within corporations, risk managers are seeing their roles enlarged with the increasing focus on corporate governance in boardrooms. More than ever before, risk managers need to harness technology to reduce balance sheet exposures, as well as using some of the more advanced risk financing techniques now entering the international arena. Captives have been a useful mechanism for many years, and their use is being extended to securitisations and other risk financing solutions. Managers in the various captive domiciles spread around Europe continue to look to a growth in captive numbers, and several see the introduction of protected cell companies as being a major source of future business.With pan-European reinsurance legislation on the cards and several tax initiatives underway aiming to harmonise the business landscape across the European Union, the sector has never been in a greater state of change.
Sarah Goddard is the editor of Global Reinsurance.