European life re/insurers are to benefit from the introduction of higher margin products going forward, which is reflected in the life operating margin recently posted by Italian insurer Generali, according to analysts at J.P. Morgan.
The firm attributed Generali’s higher operating margin to the new, lower guarantee products that it has launched since 2016, which are mainly unit linked and so have fees rather than a spread margin, and include more high margin protection.
This is a trend that will also likely benefit the profitability of Generali’s European peers, J.P. Morgan said, as the European life market as a whole has also seen a switch to higher margin products since 2016.
“The main assumption we make is that these groups achieve the same uplift to operating earnings as we forecast for Generali, but just on the European part of their life business,” J.P. Morgan stated.
This is the part that is affected by Solvency II, which has led to better capital allocation and pricing discipline, and which is the main driver behind the change, analysts noted.
The firm estimates that, of the larger players in the European life market Generali will add 11% to its total group operating profit, while CNP will add 12%, and AXA and Allianz will add 5%.
In the case of Generali, J.P. Morgan attributes the benefit to the inclusion of more protection in the new life products launched this year, while for CNP it pointed to a higher proportion of unit linked sales and a reduction in traditional life net inflows.
Meanwhile, Allianz will benefit from operating leverage in terms of higher growth in new business volume, and for AXA it is the increased focus on protection and unit linked.