Austria’s life insurance market shrinks by more than 25% over past decade

Written by Adam Cadle

01/06/2020

Austria’s life insurance market has shrunk by more than 25% over the past decade, and now faces subdued profitability meaning it will continue to shrink, Fitch Ratings has said.

The negative impact of the COVID-19 pandemic on the Austrian economy is partly to blame, the ratings agency said. Life insurance premiums are expected to fall further in 2020, after a decline of 2.2% in 2019.

Low life insurance penetration of only 1.5% suggests strong structural growth potential. The strong protection from the Austrian state pension system has held back growth and changes eliminating the tax benefits for pension plans have made life products less attractive.

P&C premiums grew 4.2% and health premiums 3.8% in 2019, stronger than the average P&C premium growth of 2.8% for the previous five years, Austria’s five-year average real GDP growth of 1.9% and in line with the five-year average health premium growth of 4%. The sector’s growth is expected to be subdued in 2020 because of the pandemic.

Profitability in the P&C market is expected to be weaker in 2020 due to lower investment income, but the combined ratio is expected to remain below 100%.

Fitch said Austrian insurers are strongly capitalised, and it expects Austrian insurers to have maintained their strong SII levels in 2019. However, due to falling yields, SII levels are at a slightly lower level than at end-2018 when the market average SCR coverage was the second-highest in all countries at 299%, up from 283% in 2017.

The share of companies using long-term guarantee measures in their SCR calculations is fairly high in Austria, reflecting a higher proportion of guaranteed life products in their business mix. Austrian insurers have strong business positions in central, eastern and south-eastern Europe. Around 40% of the cumulative premium volumes of these insurers are generated outside Austria, mainly in the Czech Republic, Poland, Slovakia, Romania, Hungary and Croatia.

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