Profitability for companies operating in the European re/insurance markets is extremely varied, largely due to the peculiarities of each market and competition arising predominantly from the reinsurance sector, according to a recent report by A.M. Best.
The rating agency observed that a handful of participants continue to dominate the European markets, but suggested that this concentration is not necessarily a negative factor where consumers are concerned, given that each individual market has significantly different attributes.
For example, it noted that products core to some markets are entirely absent from others, while distribution channel mix is often dictated by the history and culture of each particular country.
Most European countries also continued to experience relatively strong levels of competition, particularly with regard to the reinsurance sector, and in global specialty lines such as marine and aviation.
Global reinsurance markets generally encountered strong rate pressure over 2016 and 2017, particularly in property lines of business and especially in the U.S, although retail lines are also very competitive in markets like the UK and France, where motor combined operating ratios can run at around 100%.
A number of European companies have significant exposure to U.S hurricanes through either reinsurance or U.S commercial business, but the report found that these companies generally continue to report robust earnings.
The most significant insured losses in Europe for 2017 included droughts in Southern Europe through summer and autumn, severe weather in Central Europe in June, extratropical cyclone Herwart in October, and wildfires in Portugal in October.
A.M best noted that finding ways to grow will be a common challenge for European re/insurers going forward due to the maturity of the domestic markets, and suggested that M&A, stronger distribution channels, and new markets may represent popular avenues for expansion in future.
Digitalisation and innovation may also create opportunities for larger companies as they look to embed efficiencies and realise economies of scale, the report indicated.
Overall, A.M. Best said that 88% of the European re/insurers it rated had stable ICR outlooks, with 5% positive, 5% negative, and the remainder developing.
France, Germany, Italy, Spain and the UK were found to be the leading markets in Europe by gross written premium, and A.M. Best maintains a stable outlook for the non-life insurance markets of each of these countries, with the exception of the UK, which is negative.
The UK’s outlook reflects persistent competitive market conditions, as well as uncertainty related to legislative changes and the potential impact of Brexit on the UK economy.
Germany’s outlook is driven by the country’s robust economy and good underwriting discipline, while France, Spain, and Italy are currently considered robust overall but may suffer due to political instability in the near future.
