Although comparatively small, the Scandinavian countries are a mature and vital part of the European insurance landscape. Nick Thorpe investigates.

It is almost impossible to have a conversation about Scandinavia without a light peppering of familiar clichés such as “saunas”, “reindeer”, “snow” and “skiing”. But beyond the chilly climate and stereotypes lies a sophisticated Western market, incorporating stable economies and well developed insurance industries. The post-9/11 climate has seen a steady growth in non-life premiums and niche opportunities still exist for foreign players throughout the region.

With a mature live and run-off industry, Scandinavia is presenting itself as a region of opportunities. Although primarily focused on the traditional Scandinavian countries of Sweden, Norway and Denmark, this article will also incorporate facts and figures from the other Nordic countries – namely Finland and Iceland.

Über concentrated

There is a Danish proverb that says: “That which is desired by many is owned by few.” This saying is particularly relevant in the Nordic markets as each region is dominated by three to four large non-life players (see figure 1). Widespread consolidation has concentrated the market to an alarming extent, as one industry source put it, but new opportunities have not completely dried up. “There are definitely opportunities for outside players in the Nordic region,” explains Ove Staaf, general manager of Markel International Sweden. “Although the Scandinavian markets are well established and mature in terms of insurance, the opportunities are linked to niche areas such as liability, marine and aviation.”

The Nordic insurance market as a whole is, in international terms, relatively small, accounting for just 5% or $26.5bn of the $518.6bn in premiums generated throughout Europe in 2005. Of this 5%, Sweden led the pack, accounting for $8.7bn of premiums in 2005. While this is a significant figure in Scandinavian terms, when placed beside the $315bn from the UK or $477bn from Japan that year one can see how relatively small these markets are. Denmark accounts for 28%, or $7.4bn, of the Nordic market with Norway coming a respectable third with $6.6bn or 25% of the Nordic premium total. It is worth noting that Iceland produced an astonishing $2.6m in premiums in 2005, a mere 1% of the Nordic total. With a population of just over 310,000, this represents a premium spend of just $8.33 per head from a country that is the fifth most productive in the world, based on GDP per capita.

According to a recent Lloyd’s report, stimulated by the events of 9/11 and the resulting reduction in reinsurance capacity, the non-life premiums in Nordic region grew 19% a year between 2001 and 2004, accounting for a total growth of around 66% (see figure 2). Standard & Poor’s credit analyst Stephen Hadfield says that the Scandinavian life insurance markets on the other hand are relatively stable, benefiting from low economic risk and moderate industry risk throughout the region.

“Despite low bond yields relative to guarantees on traditional business, which have had a negative impact in all three countries, life insurance business in Scandinavia does have opportunities for premium growth and benefits from an improving regulatory environment,” he says.

Where did all the reinsurance go?

Scandinavian non-life business is dominated by motor and property which accounted for 67% or $16.8bn in premiums in 2005, largely due to compulsory third-party coverage in most of the region. Whilst this figure is less than in other EU countries, the market remains stable and, apart from catastrophe lines, shows little volatility. Global catastrophe losses do have some negative affects on the Scandinavian cat-exposed lines as would be expected, and insurers have been hit in recent years with fairly significant losses. Windstorms in 2005 and Winterstorm Kyrill this year have both impacted Nordic insurers, along with several marine claims and a sizeable LEGO™ product recall claim in 2006.

However the Scandinavian reinsurance market remains small, with a noticeable lack of state reinsurers. According to Johan Lagerwall, director of business development at Wasa Run-off, this was not always the case. Throughout the 1970s and 1980s, he explains, Nordic insurers had a high profile in international reinsurance. The assumed reinsurance amounted to almost 40% of the total non-life business and a number of the companies were among the world top 100 reinsurers. However the massive losses of the 1990s hit Scandinavian companies hard.

“When losses came in the early 1990s they amounted to billions of pounds as the spiral losses hit the Nordic market twice, forcing companies into run-off,” adds Lagerwall. “To a large extent, companies in the Nordic region chose to handle their run-off themselves internally, which I believe they have done with great success.”

Other than Wasa Run-off itself (which runs the Stockholm Re and Wasa International portfolios) Scandinavia Re, a Bermuda-based finite reinsurer, is another notable run-off case. It was originally part of Scandinavia’s largest reinsurer, Sirius International, before being acquired by the White Mountains Insurance Group in 2003 for $425m.

Lagerwall estimates that total liabilities for run-off in the Nordic market today amount to ?500m to ?700m. This is down considerably from the figures estimated five years ago, when the total run-off liabilities were ?2bn to ?4bn. Again when compared to a market such as the UK, which KPMG estimates boasts run-off liabilities of £32.7bn at the end of 2006, it is fair to say the Nordic run-off market is both small and mature.

The difficulties of establishing

Due to the mature nature of the markets in the Nordic region, mergers and acquisitions are the most common way of players establishing themselves in these markets. “Due to the maturity of the markets, you either have to establish yourself through niche areas or, more commonly, acquire an established player,” confirms Markel’s Staaf. Himself a long time player in the Swedish insurance market, Staaf joined Markel in October this year to head their new Stockholm office which will focus on marine business.

Staaf will be joined by Mats Heggestad who is heading up a new Hiscox office announced this November. Aon Sweden recently announced the acquisition of FörsäkringsUtveckling AB, a local insurance and broker company specialised in affinity solutions, systems and service programmes for large organisations.

This trend of acquiring niche players or opening offices to underwrite niche lines confirms Lloyd’s view in a recent report on the practice: “Niche opportunities are available in all classes of business. When analysed in terms of desirability and accessibility, the classes presenting the greatest opportunities are energy, aviation and property. Many of these opportunities are associated with introducing specialised products into the Nordic region.”

And Staaf explains further that many of the established companies in the Nordic region take little or no interest in the niche areas, “allowing new entrants to find ways to provide and distribute products at a lower cost than established, mature companies.”

Nick Thorpe is associate editor at Global Reinsurance.