Small to mid-sized insurers are the backbone of Europe’s insurance industry. Although the top ten insurers (life, non-life or composite) account for a combined market share of at least 60% in almost any European market, the region still accommodates more than 3,800 domestic insurers alone. Having started to build up a European presence since 2014, Peak Re predominately caters to the small to mid-sized segment as it matches our long-term market approach, and we can be a more referant partner in this sector.
In 2015 growth was sluggish for Europe’s primary insurers. Western Europe’s gross domestic product (GDP) increased by 1.8%, slightly better than 1.4% in 2014, but below the global average of 2.5%. UK, Germany and Spain were ahead of the curve, while France and Italy trailed behind. Inflation remained close to zero and the European Central Bank therefore continued its expansionary policy by driving interest rates to record low levels. Stock markets performed fairly solidly with the Euro Stoxx 50 index increasing 4.5% throughout the year. In sum, however, the mix of sputtering economic growth, low interest rates and stable financial markets mean for Europe’s insurers that the current soft market phase will continue.
Overall, according to Insurance Europe, the federation of Europe’s insurers and reinsurers, and Swiss Re’s Sigma report on world insurance in 2015, premiums of Europe’s insurers were up 3.4% at EUR 1,167 billion in 2014. Despite its slow growth, however, Europe still boasts the largest insurance industry worldwide with a share of 35.5%, ahead of North America (33.4%) and Asia (27.6%).
In 2014 around 3,800 insurance companies operated in Europe, down by roughly 10% since ten years ago. This figure includes all domestic players plus the branches of non-European companies. The total of licensed insurance companies overseen by national supervisory authorities, which includes all branches, is almost double. The UK, Europe’s largest insurance market, counts 559 companies, closely followed by Germany (548), Sweden (327), France (313) and Spain (255).
However, Europe’s insurance market is fairly concentrated. According to Insurance Europe, the UK’s ten largest composite insurers, offering life and non-life products, account for 61% of the market, in Germany they write 64% of premiums, in France their share amounts to more than 70%. For the pure life or non-life insurers the situation is fairly similar. Again, market shares have remained quite stable over the past ten years, or at least there appears no clear pattern with regards to the rising or falling shares of the market leaders.
Notwithstanding the GDP growth in 2014, Europe’s insurance industry expanded by a mere 0.6% since 2007 – prior to the financial crisis. Only its mutual and cooperative insurers, which include some of the region’s largest players too, but also the bulk of the small to mid-sized insurers, fared better. According to the Association of Mutual Insurers and Insurance Cooperatives in Europe, AMICE, their premium volume increased by 34% or by 4.3% on a compounded annual growth rate (CAGR) from 2007 to 2014, well above the 0.1% CAGR of the total market. As a result, its market share increased from 23.3% to 31.2%. Five of the ten largest European market mutual insurers now hold a market share of more than one third, with record shares in France (47.4%), Germany (44%), Spain (39%) or the Netherlands (51%).
According to Peak Re’s experience, the small to mid-sized insurers fared well in markets, which remained profitable during the past few years – such as in Scandinavia, where start-ups emerged or where they were able to establish multi- country networks to successfully diversify their portfolio. The segment also remained profitable, as many players improved their risk management, but also benefited from no major natural catastrophe losses in recent years.
Solvency II, in place since January 2016, did not derail the segment – as some pundits had feared. Most players used the long introductory phase to strengthen their capitalisation, improve their internal modelling capabilities and thereby optimise their capital allocation. Nevertheless, in markets where insurers are more short-term oriented, the impact of Solvency II triggered a more immediate demand for capital or contingent capital through reinsurance. Smaller players are also more affected as the standard model under Solvency II might entail relatively high capital requirements.
Peak Re supports Europe’s small to mid-sized client segment with bespoke services. We engage in long-term relationships and pursue a holistic underwriting strategy, combining market underwriting, product underwriting and analytics into one comprehensive risk evaluation process. Peak Re does not underwrite the market, but applies a prudent client selection process. Before we commit ourselves, we aim to thoroughly understand our cedants and to fully support them in their growth ambitions, this approach reflects our corporate philosophy, which in the alignment of our shareholders. As a reinsurer originating from Asia, our experience suits the preferences of our European cedants. Similarly, our clients in Asia also prefer a partner with whom they share a mutual understanding.
Due to the dynamic development of the insurance industry, in particular in emerging Asia, Peak Re is well familiar with the changes that are going to affect our European cedants. Asia is very much technology and efficiency driven. For instance, China’s insurance penetration for agriculturalrisksisatabout80%-although certainly subsidised by the Chinese government, which has a stern interest to increase food safety. By contrast, in Italy that penetration is at roughly 20%. When we last met with our Italian cedants, we brought along our underwriter for China, who explained how claims are assessed there by using drones to minimize claims and loss adjusters costs and increase accuracy in loss recording. This new technology has been well received and utilised by the Chinese agriculture market and is only one of the many innovative examples Asia market has developed. Peak Re, with our strong Asia presence, is able to bring over insightful ideas to share with our European clients.
In September last year we opened our client facing office in Zurich which works seamlessly as part of our Hong Kong headquartered underwriting platform. Peak Re is fully equipped to underwrite all property and casualty lines, including specialty lines and credit & surety.
