European Insurance Review 2003 and Outlook 2004
Swiss Re’s annual review of the European insurance industry and outlook for the coming year took place in London on 10 December 2003. The event, hosted by John H. Fitzpatrick, Head of the Life & Health Business Group, featured presentations from Thomas Hess, Head of Swiss Re Group Economic Research & Consulting and William Hawkins, Insurance Analyst, Fox-Pitt, Kelton as well as from Mr Fitzpatrick himself.
Challenges and opportunities in life insurance
John Fitzpatrick started the session with an appraisal of the current challenges in the life insurance industry, most notably the difficult investment environment. Stock markets around the world have declined between 40% and 60% since the peak in 2000, which has contributed to a very significant depletion of risk capital. Current regulatory changes are also affecting the industry.
At the same time, industry research undertaken by Swiss Re in the UK in 2002 points to the opportunities in the life insurance sector. The research suggests that an extra GBP 2,000 billion of life insurance cover is needed to plug a “Life Protection Gap”. Together with its clients and other stakeholders, the industry needs to find an approach that provides the right products at sustainable prices, while regulators must reach a careful balance between protecting consumers and maintaining a sound insurance system.
Global economic outlook
In his analysis of the insurance industry worldwide, Swiss Re Chief Economist Thomas Hess highlighted the positive development of non-life business which has experienced strong growth during the last two years. At the same time, some insurers’ results have been negatively impacted by reserve corrections for prior years’ liability portfolios. It is anticipated that the improvements in the non-life branches will continue into 2004 as a result of continued premium growth, while overall results are expected to improve with better stock market performance.
Improvements in the life insurance sector will take longer as the industry is still bound by conditions, such as long-term guarantees, that were offered to clients in the days of a buoyant stock market. These challenging conditions might herald a degree of consolidation, particularly among smaller players.
Insurance stock outlook
Closing the meeting, William Hawkins, Insurance Analyst at Fox-Pitt, Kelton spoke about recent insurance stock performance and prospects for the coming year. Towards the end of 2003, European insurance stock prices showed satisfactory performance, despite underperformance in the first quarter of the year.
Looking to the future, assuming ongoing macroeconomic stability, there are signs that share price improvements can be maintained as prospects for the industry in general remain promising. However, underwriting discipline and efforts towards operational efficiencies continue to be priority topics.
The presentations can be downloaded here.
