IAM's most popular stories from 2020

Written by Adam Cadle

23/12/2020

Total European insurance premiums increase 6.2% to €1,311bn

Total insurance premiums in Europe increased 6.2% in 2018, to €1,311bn, due to relatively strong growth in all business lines, according to Insurance Europe.

In the life sector premiums grew by +6.7% to €764bn, health +4.8% to €140bn and P&C +5.7% to €407bn. Total premiums in Europe rose for the six years to 2018 at an average rate of 3.8% each year.

The robust growth in 2018 was also due to positive results in most European markets. The three largest markets — the UK, France and Germany — together accounted for 58.2% of all premiums in Europe, or 1.1% more than the year before. All three markets recorded solid increases in premiums: 15.9% in the UK, 3.7% in France and 2.2% in Germany.

The Nordic and central and eastern European markets also contributed to the strong result, with growth of 5.2% and 3% respectively for the two blocks. After two years of decline in premiums, Italy, Europe’s fourth largest market, registered premium growth of 3.2%. Only two markets recorded a decline in premiums in 2018: Poland (-0.8%) and Liechtenstein (-14.5%)

GDV slams BdV over 'non-transparent' German life insurer SFCR claims

The German Insurance Assocation (GDV) has questioned an investigation by the Federation of Insured Persons (BdV) into the position of German life insurers, as “not adequately justified” and “non-transparent”.

The BdV examined the SFCR reports of 84 life insurers, and found that more than a quarter have serious problems around solvency or negative earnings expectations.

Sixteen of those insurers analysed had a solvency ratio of less than 100, according to the BdV. Of the insurers with a solvency ratio of less than 100 in 2019, only two have moved to over 100% - Athora and Münchener Verein.

However, the GDV defended the market, stating that all life insurers have sufficient own funds and security buffers to the extent required by law, and on average, life insurers provide twice or three times the legally required own funds.

US life insurers backed to manage market-sensitive liabilities amid COVID-19

Most US life insurers are expected to pass the test of managing their market-sensitive liabilities amid COVID-19, due to their improved hedging practices since the last financial crisis, but this current climate will “undoubtedly showcase any weaknesses in an insurer’s hedging framework”, S&P Global Ratings has said.

In its report looking at the US life and P&C spaces amid COVID-19, S&P Global Ratings said “insurers that didn’t buy adequate protection from an equity downturn or lower rate environment may see negative charges for their market-sensitive liabilities, although the magnitude of those, especially in the first quarter, remains to be seen”.

“Related to their hedging framework, we do expect more accounting noise in the first quarter as generally accepted accounting principles (GAAP) accounting requires most of these derivate gains/losses to be mark-to-market, even though liabilities are not. Additionally, in volatile markets, the cost of dynamic hedging programs increases, which is something the insurers will have to consider as their hedges expire and they need to do renew their protection.”

French life insurers under pressure to cut bonus rates as low interest rates hit

French life insurers are under pressure to cut bonus rates as low interest rates bite.

According to AM Best, low interest rates and flattening yield curves are putting pressure on French life insurers’ traditional operating models, with the consequent solvency considerations and regulatory concern prompting them to reduce bonus rates to euro-denominated contracts and diversify their revenue streams in favour of capital-light products.

Ghislain Le Cam, director, analytics at AM Best said "significantly reducing bonus rates on traditional savings products would enable insurers to protect their margins on core traditional savings business while also encouraging policyholders to redirect their savings toward capital efficient unit-linked products, which have the potential for better performance".

Europe insurance M&A activity rises 27% following Brexit lull

Europe saw the biggest increase in M&A activity between 2018 and 2019, with the number of deals increasing by 27% as transactions previously put on hold due to Brexit finally made it over the line.

According to Clyde & Co’s latest report, Balancing risk and reward, the volume of deals completed in Europe rose from 122 to 155, and globally in the same period, deals rose by 9.7% from 382 to 419.

The volume of transactions in 2019 globally hit a four-year high.

SII 2020 review could impact life insurers' solvency ratios by more than 100pp

Life insurers' Solvency II ratios could be impacted by more than 100 percentage points, as the industry gears up for the 2020 review of the European regulation, according to S&P Global Ratings.

In October 2019, EIOPA published an almost 900-page consultation paper with updated suggestions for almost all Solvency II aspects following a request from the EC. Taking the interest rate stress, the last liquid point (LLP) and the volatility adjustment (VA) all in to account, S&P analyst Sebastian Dany stated that life insurers with long-term guaranteed liabilities could be affected most, particularly in Germany, The Netherlands, and the Nordic countries.

£25bn worth of bulk annuity deals predicted in 2020

Annual buy-in and buyout volumes by UK defined benefit pension schemes will hit £25bn in 2020, LCP has predicted.

This would make 2020 the second busiest year on record for the transactions, exceeding the £24.2bn reached in 2018 but falling short of the record £43.8bn worth of bulk annuity deals completed in 2019.

The company pointed out that pricing had improved over March and April relative to the value of gilts, reflecting falling prices of high-quality corporate bonds that insurers invest in.

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