european insurers: pressures on capital efficiency and expansion into emerging markets

2015 Insurance Market Briefing -Europe

etc.venues St.Paul’s, London

04 November 2015

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2015 Insurance Market Briefing - Europe 4 November 2015 5

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2015 Insurance Market Briefing -Europe


Carlos Wong-FupuySenior Director, Analytics, A.M. Best

European Insurers:Pressures on Capital Efficiency and Expansion into Emerging

Markets

0

1

2

3

4

5

6

7

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: European Central Bank

Italy

Spain

France

Germany

Pressures on capital efficiency


Long-Term Interest Rates for Convergence Purposes (2000 - September, 2015)



-8

-6

-4

-2

0

2

4

62008 2009 2010 2011 2012 2013 2014

%

Source: International Monetary Fund, World Economic Outlook Database, April 2015

Western Europe - Percentage Change in GDP for Selected Countries (2008-2014)

Italy

Spain

France

Germany

UK



• Mature markets: penetration

• Regulation

• Complexity / capital intensity

• Competition

• Long-term opportunities:

– Shrinking role of the State

– Ageing populations

– Investment / infrastructure projects

2015 Insurance Market Briefing - Europe


4 November 2015 62

Country

Gross Domestic

Product

(USD billions)

Real GDP

per Capita

(USD)

Change in

Real GDP

(%)

Insurance Market

Penetration

(%)

France 2,847 44,538 0.36% 9.5%

Germany 3,860 47,590 1.61% 6.6%

Italy 2,148 35,823 -0.42% 9.1%

Spain 1,407 30,278 1.39% 5.1%

United Kingdom 2,945 45,653 2.55% 11.9%

Sources: International Monetary Fund, World Economic Outlook Database, April 2015; Swiss Re, sigma; A.M. Best data and research



Country

Total

Premium

2014

(USD billions)

Global

Ranking

Total

Premium

2014

Total

Premium

Growth 2014

(%)

Life Premium

Growth 2014

(%)

Non-Life

Premium

Growth 2014

(%)

Total

Premium

Growth 2013

(%)

France 271 5 5.1% 7.2% 1.6% 6.7%

Germany 255 6 2.8% 3.3% 2.3% 6.6%

Italy 195 7 15.3% 23.1% -2.7% 17.3%

Spain 71 14 -0.7% -2.5% 0.9% 0.7%

United Kingdom 351 3 7.9% 7.4% 8.7% -1.1%


Strategic actions


• Returning capital to shareholders, e.g. re-insurers

• Partnering with alternative capital providers

• Mergers and acquisitions

• Groups’ legal re-structuring

• Re-insurance centralisation

• Cost management

• Gradually riskier investment portfolios: real assets

and/or

• International expansion

2015 Insurance Market Briefing - Europe

BRICS challenges

4 November 2015 65

• Decoupled from

advanced

economies?

• Sliding currencies

• Sudden capital

flight?

• Globalised capital

markets

Brazil

Russia

India

China

South Africa

-10

-5

0

5

10

15

2008 2009 2010 2011 2012 2013 2014

%

Percentage Change in GDP (2008-2014)

Source: International Monetary Fund, World Economic Outlook Database, April 2015

BRICS challenges


• Fiscal imbalances

• Heavy commodity reliance

Credit ratings downgrades

• High unemployment

• Economic recession

• Unstable government

• Low oil prices

• High inflation / devaluation

• International sanctions

• Foreign investment flight

• Geopolitical tensions

• Stock market turmoil

• Yuan devaluation

• Decrease in exports

• Shift from infrastructure

investments to domestic

consumption

• Less dependence on

China

• Oil importer

• Fragile banking system /

bad debts

• Rigid labour laws

• State level legislation• Smallest of all BRICS

• Lagged behind during

commodity boom

• High unemployment

• Poor energy infrastructure

• Underinvestment in state

owned utilities

Selective growth


• Key territories:Asia Pacific, Lat Am,Eastern Europe, Turkey

• Exit or downsizing in particular areas:

– Russia:Allianz, Zurich - GI retail

– India:RSA - GI, ING – Life

• Development costs or corrective actions in place:

– Turkey:Ergo, AXA – Motor

– Brazil:Allianz, Zurich

• Regulatory changes (ownership) / political sanctions

Volatile emerging markets



Country

Gross Domestic

Product

(USD billions)

Real GDP

per Capita

(USD)

Change in

Real GDP

(%)

Insurance Market

Penetration

(%)

Brazil 2,353 11,604 0.15% 3.6%

Chile 258 14,477 1.84% 4.2%

China 10,380 7,589 7.36% 3.2%

Colombia 385 8,076 4.55% 2.5%

India 2,050 1,627 7.17% 3.4%

Mexico 1,283 10,715 2.13% 2.1%

Poland 547 14,379 3.30% 3.2%

Russia 1,857 12,926 0.62% 1.4%

Turkey 806 10,482 2.90% 1.4%

Volatile emerging markets

2015 Insurance Market Briefing - Europe 4 November 2015 69Sources: International Monetary Fund, World Economic Outlook Database, April 2015; Swiss Re, sigma; A.M. Best data and research

Country

Total

Premium

2014

(USD billions)

Global

Ranking

Total

Premium

2014

Total

Premium

Growth 2014

(%)

Life Premium

Growth 2014

(%)

Non-Life

Premium

Growth 2014

(%)

Total

Premium

Growth 2013

(%)

Brazil 85 13 3.3% 2.8% 3.8% 0.5%

Chile 11 40 -6.8% -8.4% -4.5% 4.2%

China 328 4 17.3% 15.4% 19.5% 14.1%

Colombia 10 41 -5.6% -21.2% 3.2% 13.4%

India 70 15 7.2% 6.4% 10.4% -1.0%

Mexico 27 25 -0.4% 1.0% -1.7% 13.9%

Poland 17 33 -4.7% -11.0% 0.7% -6.0%

Russia 26 27 -9.4% 6.1% -11.0% 9.2%

Turkey 12 39 -6.9% -16.2% -5.4% 14.6%

Significant growth in emerging markets (examples)

2015 Insurance Market Briefing - Europe 704 November 2015

0%

50%

100%

150%

200%

250%

300%

350%

Mapfre Talanx Pru

0%

20%

40%

60%

80%

2004 2009 2014

Mapfre (Intl) Talanx (Int) Pru (Asia)

Growth in key areas(percentage of total premiums)

Total assets 2014 / 2004(percentage)

Expansion becoming moreselective


1: Out of EUR 30bn, international business was EUR 4bn from six countries (namely European countries and Japan). Source: Company accounts, A.M.Best data and research

Rank Company

Country of

Domicile

Gross Premium

Written (2014)

(EUR millions)

Asia

Pacific

Central

Eastern

Europe

Latin

America Turkey

1 AXA S.A. France 86,267

2 Allianz SE Germany 73,883

3 Assicurazioni Generali S.p.A. Italy 66,236

4 Zurich Insurance Group Ltd. Switzerland 45,068

5 Prudential plc UK 41,959

6 CNP Assurances France 30,643

7 Credit Agricole Assurances1 France 29,377

8 Talanx AG Germany 27,903

9 Aviva plc UK 27,694

10 MAPFRE S.A. Spain 22,401

Potentially higher margins but not without some challenges


HGM: High Growth Markets. Based on 2014 year figures Source: Company accounts, A.M.Best data and research

Company

P/C

Share

HGM (%)

Combined

Ratio

HGM (%)

Combined

Ratio

Total (%)

Life

Share

HGM (%)

Life

Margin

HGM (%)

Life

Margin

Total (%)

AXA S.A. 16.0% 98.7% 97.6% 17.5% 49.0% 34.0%

Allianz SE 9.0% 111.3% 94.3% 15.1% 3.6% 2.4%

Generali S.p.A. 14.8% 96.9% 93.8% 5.9% 21.9% 24.0%

Zurich Insurance Group Ltd. 12.3% 104.6% 97.3% 33.2% 26.5% 22.1%

Prudential plc n/a n/a n/a 48.1% 52.0% 46.0%

CNP Assurances n/a n/a n/a 14.7% 32.1% 11.9%

Credit Agricole Assurances n/a n/a n/a n/a n/a n/a

Talanx AG 34.4% 96.4% 101.7% 18.6% 6.9% 1.9%

Aviva plc 10.2% 7.6% 4.1%

MAPFRE S.A. 48.8% 95.3% 95.7% 47.7% 17.7% 12.0%

Emerging Markets Challenges


• Lack of scale/fragmented regions

• Dominance of compulsory lines

• Dependence on regulation

• Ownership and investment restrictions

• Loss leader behaviour/focus on market share

• Underperformance/management and integration issues

• Difficult target company valuations/private ownership

Conclusions


• Focus on efficient re-deploying of capital

• Expansion is becoming more selective

• Increased efforts in turning around existing businesses

• Groups have moved to a more centralised approach to manage their risks.

Q & A


Carlos Wong-FupuySenior Director, Analytics, A.M. Best

European Insurers:Pressures on Capital Efficiency and Expansion into Emerging

Markets

european insurers: pressures on capital efficiency and expansion into emerging markets

Economy & Finance